Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19650

September 29, 1966

CALTEX (PHILIPPINES), INC., petitioner-appellee,

vs.
ENRICO PALOMAR, in his capacity as THE POSTMASTER GENERAL, respondentappellant.
Office of the Solicitor General for respondent and appellant.
Ross, Selph and Carrascoso for petitioner and appellee.
CASTRO, J.:
In the year 1960 the Caltex (Philippines) Inc. (hereinafter referred to as Caltex)
conceived and laid the groundwork for a promotional scheme calculated to
drum up patronage for its oil products. Denominated "Caltex Hooded Pump
Contest", it calls for participants therein to estimate the actual number of liters
a hooded gas pump at each Caltex station will dispense during a specified
period. Employees of the Caltex (Philippines) Inc., its dealers and its advertising
agency, and their immediate families excepted, participation is to be open
indiscriminately to all "motor vehicle owners and/or licensed drivers". For the
privilege to participate, no fee or consideration is required to be paid, no
purchase of Caltex products required to be made. Entry forms are to be made
available upon request at each Caltex station where a sealed can will be
provided for the deposit of accomplished entry stubs.
A three-staged winner selection system is envisioned. At the station level, called
"Dealer Contest", the contestant whose estimate is closest to the actual number
of liters dispensed by the hooded pump thereat is to be awarded the first prize;
the next closest, the second; and the next, the third. Prizes at this level consist
of a 3-burner kerosene stove for first; a thermos bottle and a Ray-O-Vac hunter
lantern for second; and an Everready Magnet-lite flashlight with batteries and a
screwdriver set for third. The first-prize winner in each station will then be
qualified to join in the "Regional Contest" in seven different regions. The
winning stubs of the qualified contestants in each region will be deposited in a

sealed can from which the first-prize, second-prize and third-prize winners of
that region will be drawn. The regional first-prize winners will be entitled to
make a three-day all-expenses-paid round trip to Manila, accompanied by their
respective Caltex dealers, in order to take part in the "National Contest". The
regional second-prize and third-prize winners will receive cash prizes of P500
and P300, respectively. At the national level, the stubs of the seven regional
first-prize winners will be placed inside a sealed can from which the drawing for
the final first-prize, second-prize and third-prize winners will be made. Cash
prizes in store for winners at this final stage are: P3,000 for first; P2,000 for
second; Pl,500 for third; and P650 as consolation prize for each of the remaining
four participants.
Foreseeing the extensive use of the mails not only as amongst the media for
publicizing the contest but also for the transmission of communications relative
thereto, representations were made by Caltex with the postal authorities for the
contest to be cleared in advance for mailing, having in view sections 1954(a),
1982 and 1983 of the Revised Administrative Code, the pertinent provisions of
which read as follows:
SECTION 1954. Absolutely non-mailable matter. No matter belonging to any
of the following classes, whether sealed as first-class matter or not, shall be
imported into the Philippines through the mails, or to be deposited in or carried
by the mails of the Philippines, or be delivered to its addressee by any officer or
employee of the Bureau of Posts:
Written or printed matter in any form advertising, describing, or in any manner
pertaining to, or conveying or purporting to convey any information concerning
any lottery, gift enterprise, or similar scheme depending in whole or in part
upon lot or chance, or any scheme, device, or enterprise for obtaining any
money or property of any kind by means of false or fraudulent pretenses,
representations, or promises.
"SECTION 1982. Fraud orders.Upon satisfactory evidence that any person or
company is engaged in conducting any lottery, gift enterprise, or scheme for the
distribution of money, or of any real or personal property by lot, chance, or
drawing of any kind, or that any person or company is conducting any scheme,
device, or enterprise for obtaining money or property of any kind through the
mails by means of false or fraudulent pretenses, representations, or promises,
the Director of Posts may instruct any postmaster or other officer or employee
of the Bureau to return to the person, depositing the same in the mails, with the

word "fraudulent" plainly written or stamped upon the outside cover thereof,
any mail matter of whatever class mailed by or addressed to such person or
company or the representative or agent of such person or company.

of the mails to bring the contest to the attention of the public". After issues
were joined and upon the respective memoranda of the parties, the trial court
rendered judgment as follows:

SECTION 1983. Deprivation of use of money order system and telegraphic

transfer service.The Director of Posts may, upon evidence satisfactory to him
that any person or company is engaged in conducting any lottery, gift enterprise
or scheme for the distribution of money, or of any real or personal property by
lot, chance, or drawing of any kind, or that any person or company is conducting
any scheme, device, or enterprise for obtaining money or property of any kind
through the mails by means of false or fraudulent pretenses, representations, or
promise, forbid the issue or payment by any postmaster of any postal money
order or telegraphic transfer to said person or company or to the agent of any
such person or company, whether such agent is acting as an individual or as a
firm, bank, corporation, or association of any kind, and may provide by
regulation for the return to the remitters of the sums named in money orders or
telegraphic transfers drawn in favor of such person or company or its agent.

In view of the foregoing considerations, the Court holds that the proposed
'Caltex Hooded Pump Contest' announced to be conducted by the petitioner
under the rules marked as Annex B of the petitioner does not violate the Postal
Law and the respondent has no right to bar the public distribution of said rules
by the mails.
The respondent appealed.
The parties are now before us, arrayed against each other upon two basic
issues: first, whether the petition states a sufficient cause of action for
declaratory relief; and second, whether the proposed "Caltex Hooded Pump
Contest" violates the Postal Law. We shall take these up in seriatim.

1. By express mandate of section 1 of Rule 66 of the old Rules of Court, which

The overtures were later formalized in a letter to the Postmaster General, dated was the applicable legal basis for the remedy at the time it was invoked,
October 31, 1960, in which the Caltex, thru counsel, enclosed a copy of the
declaratory relief is available to any person "whose rights are affected by a
contest rules and endeavored to justify its position that the contest does not
statute . . . to determine any question of construction or validity arising under
violate the anti-lottery provisions of the Postal Law. Unimpressed, the then
the . . . statute and for a declaration of his rights thereunder" (now section 1,
Acting Postmaster General opined that the scheme falls within the purview of
Rule 64, Revised Rules of Court). In amplification, this Court, conformably to
the provisions aforesaid and declined to grant the requested clearance. In its
established jurisprudence on the matter, laid down certain conditions sine qua
counsel's letter of December 7, 1960, Caltex sought a reconsideration of the
non therefor, to wit: (1) there must be a justiciable controversy; (2) the
foregoing stand, stressing that there being involved no consideration in the part controversy must be between persons whose interests are adverse; (3) the
of any contestant, the contest was not, under controlling authorities,
party seeking declaratory relief must have a legal interest in the controversy;
condemnable as a lottery. Relying, however, on an opinion rendered by the
and (4) the issue involved must be ripe for judicial determination (Tolentino vs.
Secretary of Justice on an unrelated case seven years before (Opinion 217,
The Board of Accountancy, et al., G.R. No. L-3062, September 28, 1951;
Series of 1953), the Postmaster General maintained his view that the contest
Delumen, et al. vs. Republic of the Philippines, 50 O.G., No. 2, pp. 576, 578-579;
involves consideration, or that, if it does not, it is nevertheless a "gift enterprise" Edades vs. Edades, et al., G.R. No. L-8964, July 31, 1956). The gravamen of the
which is equally banned by the Postal Law, and in his letter of December 10,
appellant's stand being that the petition herein states no sufficient cause of
1960 not only denied the use of the mails for purposes of the proposed contest action for declaratory relief, our duty is to assay the factual bases thereof upon
but as well threatened that if the contest was conducted, "a fraud order will
the foregoing crucible.
have to be issued against it (Caltex) and all its representatives".
As we look in retrospect at the incidents that generated the present
Caltex thereupon invoked judicial intervention by filing the present petition for controversy, a number of significant points stand out in bold relief. The appellee
declaratory relief against Postmaster General Enrico Palomar, praying "that
(Caltex), as a business enterprise of some consequence, concededly has the
judgment be rendered declaring its 'Caltex Hooded Pump Contest' not to be
unquestioned right to exploit every legitimate means, and to avail of all
violative of the Postal Law, and ordering respondent to allow petitioner the use appropriate media to advertise and stimulate increased patronage for its

products. In contrast, the appellant, as the authority charged with the

enforcement of the Postal Law, admittedly has the power and the duty to
suppress transgressions thereof particularly thru the issuance of fraud orders,
under Sections 1982 and 1983 of the Revised Administrative Code, against
legally non-mailable schemes. Obviously pursuing its right aforesaid, the
appellee laid out plans for the sales promotion scheme hereinbefore detailed.
To forestall possible difficulties in the dissemination of information thereon thru
the mails, amongst other media, it was found expedient to request the appellant
for an advance clearance therefor. However, likewise by virtue of his jurisdiction
in the premises and construing the pertinent provisions of the Postal Law, the
appellant saw a violation thereof in the proposed scheme and accordingly
declined the request. A point of difference as to the correct construction to be
given to the applicable statute was thus reached. Communications in which the
parties expounded on their respective theories were exchanged. The confidence
with which the appellee insisted upon its position was matched only by the
obstinacy with which the appellant stood his ground. And this impasse was
climaxed by the appellant's open warning to the appellee that if the proposed
contest was "conducted, a fraud order will have to be issued against it and all its
representatives."
Against this backdrop, the stage was indeed set for the remedy prayed for. The
appellee's insistent assertion of its claim to the use of the mails for its proposed
contest, and the challenge thereto and consequent denial by the appellant of
the privilege demanded, undoubtedly spawned a live controversy. The
justiciability of the dispute cannot be gainsaid. There is an active antagonistic
assertion of a legal right on one side and a denial thereof on the other,
concerning a real not a mere theoretical question or issue. The contenders
are as real as their interests are substantial. To the appellee, the uncertainty
occasioned by the divergence of views on the issue of construction hampers or
disturbs its freedom to enhance its business. To the appellant, the suppression
of the appellee's proposed contest believed to transgress a law he has sworn to
uphold and enforce is an unavoidable duty. With the appellee's bent to hold the
contest and the appellant's threat to issue a fraud order therefor if carried out,
the contenders are confronted by the ominous shadow of an imminent and
inevitable litigation unless their differences are settled and stabilized by a
tranquilizing declaration (Pablo y Sen, et al. vs. Republic of the Philippines, G.R.
No. L-6868, April 30, 1955). And, contrary to the insinuation of the appellant,
the time is long past when it can rightly be said that merely the appellee's
"desires are thwarted by its own doubts, or by the fears of others" which
admittedly does not confer a cause of action. Doubt, if any there was, has

ripened into a justiciable controversy when, as in the case at bar, it was

translated into a positive claim of right which is actually contested (III Moran,
Comments on the Rules of Court, 1963 ed., pp. 132-133, citing: Woodward vs.
Fox West Coast Theaters, 36 Ariz., 251, 284 Pac. 350).
We cannot hospitably entertain the appellant's pretense that there is here no
question of construction because the said appellant "simply applied the clear
provisions of the law to a given set of facts as embodied in the rules of the
contest", hence, there is no room for declaratory relief. The infirmity of this
pose lies in the fact that it proceeds from the assumption that, if the
circumstances here presented, the construction of the legal provisions can be
divorced from the matter of their application to the appellee's contest. This is
not feasible. Construction, verily, is the art or process of discovering and
expounding the meaning and intention of the authors of the law with respect to
its application to a given case, where that intention is rendered doubtful,
amongst others, by reason of the fact that the given case is not explicitly
provided for in the law (Black, Interpretation of Laws, p. 1). This is precisely the
case here. Whether or not the scheme proposed by the appellee is within the
coverage of the prohibitive provisions of the Postal Law inescapably requires an
inquiry into the intended meaning of the words used therein. To our mind, this
is as much a question of construction or interpretation as any other.
Nor is it accurate to say, as the appellant intimates, that a pronouncement on
the matter at hand can amount to nothing more than an advisory opinion the
handing down of which is anathema to a declaratory relief action. Of course, no
breach of the Postal Law has as yet been committed. Yet, the disagreement over
the construction thereof is no longer nebulous or contingent. It has taken a fixed
and final shape, presenting clearly defined legal issues susceptible of immediate
resolution. With the battle lines drawn, in a manner of speaking, the propriety
nay, the necessity of setting the dispute at rest before it accumulates the
asperity distemper, animosity, passion and violence of a full-blown battle which
looms ahead (III Moran, Comments on the Rules of Court, 1963 ed., p. 132 and
cases cited), cannot but be conceded. Paraphrasing the language in Zeitlin vs.
Arnebergh 59 Cal., 2d., 901, 31 Cal. Rptr., 800, 383 P. 2d., 152, cited in 22 Am.
Jur., 2d., p. 869, to deny declaratory relief to the appellee in the situation into
which it has been cast, would be to force it to choose between undesirable
alternatives. If it cannot obtain a final and definitive pronouncement as to
whether the anti-lottery provisions of the Postal Law apply to its proposed
contest, it would be faced with these choices: If it launches the contest and uses
the mails for purposes thereof, it not only incurs the risk, but is also actually

threatened with the certain imposition, of a fraud order with its concomitant
stigma which may attach even if the appellee will eventually be vindicated; if it
abandons the contest, it becomes a self-appointed censor, or permits the
appellant to put into effect a virtual fiat of previous censorship which is
constitutionally unwarranted. As we weigh these considerations in one equation
and in the spirit of liberality with which the Rules of Court are to be interpreted
in order to promote their object (section 1, Rule 1, Revised Rules of Court)
which, in the instant case, is to settle, and afford relief from uncertainty and
insecurity with respect to, rights and duties under a law we can see in the
present case any imposition upon our jurisdiction or any futility or prematurity
in our intervention.
The appellant, we apprehend, underrates the force and binding effect of the
ruling we hand down in this case if he believes that it will not have the final and
pacifying function that a declaratory judgment is calculated to subserve. At the
very least, the appellant will be bound. But more than this, he obviously
overlooks that in this jurisdiction, "Judicial decisions applying or interpreting the
law shall form a part of the legal system" (Article 8, Civil Code of the Philippines).
In effect, judicial decisions assume the same authority as the statute itself and,
until authoritatively abandoned, necessarily become, to the extent that they are
applicable, the criteria which must control the actuations not only of those
called upon to abide thereby but also of those in duty bound to enforce
obedience thereto. Accordingly, we entertain no misgivings that our resolution
of this case will terminate the controversy at hand.
It is not amiss to point out at this juncture that the conclusion we have herein
just reached is not without precedent. In Liberty Calendar Co. vs. Cohen, 19 N.J.,
399, 117 A. 2d., 487, where a corporation engaged in promotional advertising
was advised by the county prosecutor that its proposed sales promotion plan
had the characteristics of a lottery, and that if such sales promotion were
conducted, the corporation would be subject to criminal prosecution, it was
held that the corporation was entitled to maintain a declaratory relief action
against the county prosecutor to determine the legality of its sales promotion
plan. In pari materia, see also: Bunis vs. Conway, 17 App. Div. 2d., 207, 234
N.Y.S. 2d., 435; Zeitlin vs. Arnebergh, supra; Thrillo, Inc. vs. Scott, 15 N.J. Super.
124, 82 A. 2d., 903.
In fine, we hold that the appellee has made out a case for declaratory relief.

2. The Postal Law, chapter 52 of the Revised Administrative Code, using almost
identical terminology in sections 1954(a), 1982 and 1983 thereof, supra,
condemns as absolutely non-mailable, and empowers the Postmaster General to
issue fraud orders against, or otherwise deny the use of the facilities of the
postal service to, any information concerning "any lottery, gift enterprise, or
scheme for the distribution of money, or of any real or personal property by lot,
chance, or drawing of any kind". Upon these words hinges the resolution of the
second issue posed in this appeal.
Happily, this is not an altogether untrodden judicial path. As early as in 1922, in
"El Debate", Inc. vs. Topacio, 44 Phil., 278, 283-284, which significantly dwelt on
the power of the postal authorities under the abovementioned provisions of the
Postal Law, this Court declared that
While countless definitions of lottery have been attempted, the authoritative
one for this jurisdiction is that of the United States Supreme Court, in analogous
cases having to do with the power of the United States Postmaster General, viz.:
The term "lottery" extends to all schemes for the distribution of prizes by
chance, such as policy playing, gift exhibitions, prize concerts, raffles at fairs,
etc., and various forms of gambling. The three essential elements of a lottery
are: First, consideration; second, prize; and third, chance. (Horner vs. States
[1892], 147 U.S. 449; Public Clearing House vs. Coyne [1903], 194 U.S., 497; U.S.
vs. Filart and Singson [1915], 30 Phil., 80; U.S. vs. Olsen and Marker [1917], 36
Phil., 395; U.S. vs. Baguio [1919], 39 Phil., 962; Valhalla Hotel Construction
Company vs. Carmona, p. 233, ante.)
Unanimity there is in all quarters, and we agree, that the elements of prize and
chance are too obvious in the disputed scheme to be the subject of contention.
Consequently as the appellant himself concedes, the field of inquiry is narrowed
down to the existence of the element of consideration therein. Respecting this
matter, our task is considerably lightened inasmuch as in the same case just
cited, this Court has laid down a definitive yard-stick in the following terms
In respect to the last element of consideration, the law does not condemn the
gratuitous distribution of property by chance, if no consideration is derived
directly or indirectly from the party receiving the chance, but does condemn as
criminal schemes in which a valuable consideration of some kind is paid directly
or indirectly for the chance to draw a prize.

Reverting to the rules of the proposed contest, we are struck by the clarity of
the language in which the invitation to participate therein is couched. Thus
No puzzles, no rhymes? You don't need wrappers, labels or boxtops? You don't
have to buy anything? Simply estimate the actual number of liter the Caltex gas
pump with the hood at your favorite Caltex dealer will dispense from to ,
and win valuable prizes . . . ." .
Nowhere in the said rules is any requirement that any fee be paid, any
merchandise be bought, any service be rendered, or any value whatsoever be
given for the privilege to participate. A prospective contestant has but to go to a
Caltex station, request for the entry form which is available on demand, and
accomplish and submit the same for the drawing of the winner. Viewed from all
angles or turned inside out, the contest fails to exhibit any discernible
consideration which would brand it as a lottery. Indeed, even as we head the
stern injunction, "look beyond the fair exterior, to the substance, in order to
unmask the real element and pernicious tendencies which the law is seeking to
prevent" ("El Debate", Inc. vs. Topacio, supra, p. 291), we find none. In our
appraisal, the scheme does not only appear to be, but actually is, a gratuitous
distribution of property by chance.
There is no point to the appellant's insistence that non-Caltex customers who
may buy Caltex products simply to win a prize would actually be indirectly
paying a consideration for the privilege to join the contest. Perhaps this would
be tenable if the purchase of any Caltex product or the use of any Caltex service
were a pre-requisite to participation. But it is not. A contestant, it hardly needs
reiterating, does not have to buy anything or to give anything of
value.1awphl.nt

The fact that the holder of the drawing expects thereby to receive, or in fact
does receive, some benefit in the way of patronage or otherwise, as a result of
the drawing; does not supply the element of consideration. Griffith Amusement
Co. vs. Morgan, Tex. Civ. App., 98 S.W., 2d., 844" (54 C.J.S., p. 849).
Thus enlightened, we join the trial court in declaring that the "Caltex Hooded
Pump Contest" proposed by the appellee is not a lottery that may be
administratively and adversely dealt with under the Postal Law.
But it may be asked: Is it not at least a "gift enterprise, or scheme for the
distribution of money, or of any real or personal property by lot, chance, or
drawing of any kind", which is equally prescribed? Incidentally, while the
appellant's brief appears to have concentrated on the issue of consideration,
this aspect of the case cannot be avoided if the remedy here invoked is to
achieve its tranquilizing effect as an instrument of both curative and preventive
justice. Recalling that the appellant's action was predicated, amongst other
bases, upon Opinion 217, Series 1953, of the Secretary of Justice, which opined
in effect that a scheme, though not a lottery for want of consideration, may
nevertheless be a gift enterprise in which that element is not essential, the
determination of whether or not the proposed contest wanting in
consideration as we have found it to be is a prohibited gift enterprise, cannot
be passed over sub silencio.

While an all-embracing concept of the term "gift enterprise" is yet to be spelled

out in explicit words, there appears to be a consensus among lexicographers and
standard authorities that the term is commonly applied to a sporting artifice of
under which goods are sold for their market value but by way of inducement
each purchaser is given a chance to win a prize (54 C.J.S., 850; 34 Am. Jur., 654;
Off-tangent, too, is the suggestion that the scheme, being admittedly for sales
Black, Law Dictionary, 4th ed., p. 817; Ballantine, Law Dictionary with
promotion, would naturally benefit the sponsor in the way of increased
Pronunciations, 2nd ed., p. 55; Retail Section of Chamber of Commerce of
patronage by those who will be encouraged to prefer Caltex products "if only to Plattsmouth vs. Kieck, 257 N.W., 493, 128 Neb. 13; Barker vs. State, 193 S.E.,
get the chance to draw a prize by securing entry blanks". The required element 605, 56 Ga. App., 705; Bell vs. State, 37 Tenn. 507, 509, 5 Sneed, 507, 509). As
of consideration does not consist of the benefit derived by the proponent of the thus conceived, the term clearly cannot embrace the scheme at bar. As already
contest. The true test, as laid down in People vs. Cardas, 28 P. 2d., 99, 137 Cal.
noted, there is no sale of anything to which the chance offered is attached as an
App. (Supp.) 788, is whether the participant pays a valuable consideration for
inducement to the purchaser. The contest is open to all qualified contestants
the chance, and not whether those conducting the enterprise receive something irrespective of whether or not they buy the appellee's products.
of value in return for the distribution of the prize. Perspective properly oriented,
the standpoint of the contestant is all that matters, not that of the sponsor. The Going a step farther, however, and assuming that the appellee's contest can be
following, culled from Corpus Juris Secundum, should set the matter at rest:
encompassed within the broadest sweep that the term "gift enterprise" is

capable of being extended, we think that the appellant's pose will gain no added
comfort. As stated in the opinion relied upon, rulings there are indeed holding
that a gift enterprise involving an award by chance, even in default of the
element of consideration necessary to constitute a lottery, is prohibited (E.g.:
Crimes vs. States, 235 Ala 192, 178 So. 73; Russell vs. Equitable Loan & Sec. Co.,
129 Ga. 154, 58 S.E., 88; State ex rel. Stafford vs. Fox-Great Falls Theater
Corporation, 132 P. 2d., 689, 694, 698, 114 Mont. 52). But this is only one side
of the coin. Equally impressive authorities declare that, like a lottery, a gift
enterprise comes within the prohibitive statutes only if it exhibits the tripartite
elements of prize, chance and consideration (E.g.: Bills vs. People, 157 P. 2d.,
139, 142, 113 Colo., 326; D'Orio vs. Jacobs, 275 P. 563, 565, 151 Wash., 297;
People vs. Psallis, 12 N.Y.S., 2d., 796; City and County of Denver vs. Frueauff, 88
P., 389, 394, 39 Colo., 20, 7 L.R.A., N.S., 1131, 12 Ann. Cas., 521; 54 C.J.S., 851,
citing: Barker vs. State, 193 S.E., 605, 607, 56 Ga. App., 705; 18 Words and
Phrases, perm. ed., pp. 590-594). The apparent conflict of opinions is explained
by the fact that the specific statutory provisions relied upon are not identical. In
some cases, as pointed out in 54 C.J.S., 851, the terms "lottery" and "gift
enterprise" are used interchangeably (Bills vs. People, supra); in others, the
necessity for the element of consideration or chance has been specifically
eliminated by statute. (54 C.J.S., 351-352, citing Barker vs. State, supra; State ex
rel. Stafford vs. Fox-Great Falls Theater Corporation, supra). The lesson that we
derive from this state of the pertinent jurisprudence is, therefore, that every
case must be resolved upon the particular phraseology of the applicable
statutory provision.
Taking this cue, we note that in the Postal Law, the term in question is used in
association with the word "lottery". With the meaning of lottery settled, and
consonant to the well-known principle of legal hermeneutics noscitur a sociis
which Opinion 217 aforesaid also relied upon although only insofar as the
element of chance is concerned it is only logical that the term under a
construction should be accorded no other meaning than that which is consistent
with the nature of the word associated therewith. Hence, if lottery is prohibited
only if it involves a consideration, so also must the term "gift enterprise" be so
construed. Significantly, there is not in the law the slightest indicium of any
intent to eliminate that element of consideration from the "gift enterprise"
therein included.
This conclusion firms up in the light of the mischief sought to be remedied by
the law, resort to the determination thereof being an accepted extrinsic aid in
statutory construction. Mail fraud orders, it is axiomatic, are designed to

prevent the use of the mails as a medium for disseminating printed matters
which on grounds of public policy are declared non-mailable. As applied to
lotteries, gift enterprises and similar schemes, justification lies in the recognized
necessity to suppress their tendency to inflame the gambling spirit and to
corrupt public morals (Com. vs. Lund, 15 A. 2d., 839, 143 Pa. Super. 208). Since
in gambling it is inherent that something of value be hazarded for a chance to
gain a larger amount, it follows ineluctably that where no consideration is paid
by the contestant to participate, the reason behind the law can hardly be said to
obtain. If, as it has been held
Gratuitous distribution of property by lot or chance does not constitute
"lottery", if it is not resorted to as a device to evade the law and no
consideration is derived, directly or indirectly, from the party receiving the
chance, gambling spirit not being cultivated or stimulated thereby. City of
Roswell vs. Jones, 67 P. 2d., 286, 41 N.M., 258." (25 Words and Phrases, perm.
ed., p. 695, emphasis supplied).
we find no obstacle in saying the same respecting a gift enterprise. In the end,
we are persuaded to hold that, under the prohibitive provisions of the Postal
Law which we have heretofore examined, gift enterprises and similar schemes
therein contemplated are condemnable only if, like lotteries, they involve the
element of consideration. Finding none in the contest here in question, we rule
that the appellee may not be denied the use of the mails for purposes thereof.
Recapitulating, we hold that the petition herein states a sufficient cause of
action for declaratory relief, and that the "Caltex Hooded Pump Contest" as
described in the rules submitted by the appellee does not transgress the
provisions of the Postal Law.
ACCORDINGLY, the judgment appealed from is affirmed. No costs.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 155076

February 27, 2006

PLDT alleges that one of the alternative calling patterns that constitute network
fraud and violate its network integrity is that which is known as International
Simple Resale (ISR). ISR is a method of routing and completing international long
distance calls using International Private Leased Lines (IPL), cables, antenna or
air wave or frequency, which connect directly to the local or domestic exchange
facilities of the terminating country (the country where the call is destined). The
IPL is linked to switching equipment which is connected to a PLDT telephone
line/number. In the process, the calls bypass the IGF found at the terminating
country, or in some instances, even those from the originating country.4

LUIS MARCOS P. LAUREL, Petitioner,

vs.
HON. ZEUS C. ABROGAR, Presiding Judge of the Regional Trial Court, Makati City, One such alternative calling service is that offered by Baynet Co., Ltd. (Baynet)
Branch 150, PEOPLE OF THE PHILIPPINES& PHILIPPINE LONG DISTANCE
which sells "Bay Super Orient Card" phone cards to people who call their friends
TELEPHONE COMPANY, Respondents.
and relatives in the Philippines. With said card, one is entitled to a 27-minute
call to the Philippines for about 37.03 per minute. After dialing the ISR access
DECISION
number indicated in the phone card, the ISR operator requests the subscriber to
give the PIN number also indicated in the phone card. Once the callers identity
CALLEJO, SR., J.:
(as purchaser of the phone card) is confirmed, the ISR operator will then provide
a Philippine local line to the requesting caller via the IPL. According to PLDT, calls
Before us is a Petition for Review on Certiorari of the Decision1 of the Court of
made through the IPL never pass the toll center of IGF operators in the
Appeals (CA) in CA-G.R. SP No. 68841 affirming the Order issued by Judge Zeus
Philippines. Using the local line, the Baynet card user is able to place a call to any
C. Abrogar, Regional Trial Court (RTC), Makati City, Branch 150, which denied
point in the Philippines, provided the local line is National Direct Dial (NDD)
the "Motion to Quash (With Motion to Defer Arraignment)" in Criminal Case No. capable.5
99-2425 for theft.
PLDT asserts that Baynet conducts its ISR activities by utilizing an IPL to course
Philippine Long Distance Telephone Company (PLDT) is the holder of a legislative its incoming international long distance calls from Japan. The IPL is linked to
franchise to render local and international telecommunication services under
switching equipment, which is then connected to PLDT telephone lines/numbers
Republic Act No. 7082.2 Under said law, PLDT is authorized to establish,
and equipment, with Baynet as subscriber. Through the use of the telephone
operate, manage, lease, maintain and purchase telecommunication systems,
lines and other auxiliary equipment, Baynet is able to connect an international
including transmitting, receiving and switching stations, for both domestic and
long distance call from Japan to any part of the Philippines, and make it appear
international calls. For this purpose, it has installed an estimated 1.7 million
as a call originating from Metro Manila. Consequently, the operator of an ISR is
telephone lines nationwide. PLDT also offers other services as authorized by
able to evade payment of access, termination or bypass charges and accounting
Certificates of Public Convenience and Necessity (CPCN) duly issued by the
rates, as well as compliance with the regulatory requirements of the NTC. Thus,
National Telecommunications Commission (NTC), and operates and maintains
the ISR operator offers international telecommunication services at a lower rate,
an International Gateway Facility (IGF). The PLDT network is thus principally
to the damage and prejudice of legitimate operators like PLDT.6
composed of the Public Switch Telephone Network (PSTN), telephone handsets
and/or telecommunications equipment used by its subscribers, the wires and
PLDT pointed out that Baynet utilized the following equipment for its ISR
cables linking said telephone handsets and/or telecommunications equipment, activities: lines, cables, and antennas or equipment or device capable of
antenna, the IGF, and other telecommunications equipment which provide
transmitting air waves or frequency, such as an IPL and telephone lines and
interconnections.3 1avvphil.net
equipment; computers or any equipment or device capable of accepting
information applying the prescribed process of the information and supplying

the result of this process; modems or any equipment or device that enables a
data terminal equipment such as computers to communicate with other data
terminal equipment via a telephone line; multiplexers or any equipment or
device that enables two or more signals from different sources to pass through a
common cable or transmission line; switching equipment, or equipment or
device capable of connecting telephone lines; and software, diskettes, tapes or
equipment or device used for recording and storing information.7

investigation, the State Prosecutor filed an Amended Information impleading

Laurel (a partner in the law firm of Ingles, Laurel, Salinas, and, until November
19, 1999, a member of the board of directors and corporate secretary of
Baynet), and the other members of the board of directors of said corporation,
namely, Yuji Hijioka, Yasushi Ueshima, Mukaida, Lacson and Villegas, as accused
for theft under Article 308 of the Revised Penal Code. The inculpatory portion of
the Amended Information reads:

PLDT also discovered that Baynet subscribed to a total of 123 PLDT telephone
lines/numbers.8 Based on the Traffic Study conducted on the volume of calls
passing through Baynets ISR network which bypass the IGF toll center, PLDT
incurred an estimated monthly loss of P10,185,325.96.9 Records at the
Securities and Exchange Commission (SEC) also revealed that Baynet was not
authorized to provide international or domestic long distance telephone service
in the country. The following are its officers: Yuji Hijioka, a Japanese national
(chairman of the board of directors); Gina C. Mukaida, a Filipina (board member
and president); Luis Marcos P. Laurel, a Filipino (board member and corporate
secretary); Ricky Chan Pe, a Filipino (board member and treasurer); and Yasushi
Ueshima, also a Japanese national (board member).

On or about September 10-19, 1999, or prior thereto, in Makati City, and within
the jurisdiction of this Honorable Court, the accused, conspiring and
confederating together and all of them mutually helping and aiding one another,
with intent to gain and without the knowledge and consent of the Philippine
Long Distance Telephone (PLDT), did then and there willfully, unlawfully and
feloniously take, steal and use the international long distance calls belonging to
PLDT by conducting International Simple Resale (ISR), which is a method of
routing and completing international long distance calls using lines, cables,
antennae, and/or air wave frequency which connect directly to the local or
domestic exchange facilities of the country where the call is destined, effectively
stealing this business from PLDT while using its facilities in the estimated
amount of P20,370,651.92 to the damage and prejudice of PLDT, in the said
amount.

Upon complaint of PLDT against Baynet for network fraud, and on the strength
of two search warrants10 issued by the RTC of Makati, Branch 147, National
Bureau of Investigation (NBI) agents searched its office at the 7th Floor, SJG
Building, Kalayaan Avenue, Makati City on November 8, 1999. Atsushi Matsuura,
Nobuyoshi Miyake, Edourd D. Lacson and Rolando J. Villegas were arrested by
NBI agents while in the act of manning the operations of Baynet. Seized in the
premises during the search were numerous equipment and devices used in its
ISR activities, such as multiplexers, modems, computer monitors, CPUs,
antenna, assorted computer peripheral cords and microprocessors,
cables/wires, assorted PLDT statement of accounts, parabolic antennae and
voltage regulators.

CONTRARY TO LAW.13

Accused Laurel filed a "Motion to Quash (with Motion to Defer Arraignment)" on

the ground that the factual allegations in the Amended Information do not
constitute the felony of theft under Article 308 of the Revised Penal Code. He
averred that the Revised Penal Code, or any other special penal law for that
matter, does not prohibit ISR operations. He claimed that telephone calls with
the use of PLDT telephone lines, whether domestic or international, belong to
the persons making the call, not to PLDT. He argued that the caller merely uses
the facilities of PLDT, and what the latter owns are the telecommunication
State Prosecutor Ofelia L. Calo conducted an inquest investigation and issued a infrastructures or facilities through which the call is made. He also asserted that
Resolution11 on January 28, 2000, finding probable cause for theft under Article PLDT is compensated for the callers use of its facilities by way of rental; for an
308 of the Revised Penal Code and Presidential Decree No. 40112 against the
outgoing overseas call, PLDT charges the caller per minute, based on the
respondents therein, including Laurel.
duration of the call. Thus, no personal property was stolen from PLDT. According
to Laurel, the P20,370,651.92 stated in the Information, if anything, represents
On February 8, 2000, State Prosecutor Calo filed an Information with the RTC of the rental for the use of PLDT facilities, and not the value of anything owned by
Makati City charging Matsuura, Miyake, Lacson and Villegas with theft under
it. Finally, he averred that the allegations in the Amended Information are
Article 308 of the Revised Penal Code. After conducting the requisite preliminary already subsumed under the Information for violation of Presidential Decree

(P.D.) No. 401 filed and pending in the Metropolitan Trial Court of Makati City,
docketed as Criminal Case No. 276766.
The prosecution, through private complainant PLDT, opposed the motion,14
contending that the movant unlawfully took personal property belonging to it,
as follows: 1) intangible telephone services that are being offered by PLDT and
other telecommunication companies, i.e., the connection and interconnection
to their telephone lines/facilities; 2) the use of those facilities over a period of
time; and 3) the revenues derived in connection with the rendition of such
services and the use of such facilities.15

On September 14, 2001, the RTC issued an Order16 denying the Motion to
Quash the Amended Information. The court declared that, although there is no
law that expressly prohibits the use of ISR, the facts alleged in the Amended
Information "will show how the alleged crime was committed by conducting
ISR," to the damage and prejudice of PLDT.

Laurel filed a Motion for Reconsideration17 of the Order, alleging that

international long distance calls are not personal property, and are not capable
of appropriation. He maintained that business or revenue is not considered
personal property, and that the prosecution failed to adduce proof of its
The prosecution asserted that the use of PLDTs intangible telephone
existence and the subsequent loss of personal property belonging to another.
services/facilities allows electronic voice signals to pass through the same, and
Citing the ruling of the Court in United States v. De Guzman,18 Laurel averred
ultimately to the called partys number. It averred that such service/facility is
that the case is not one with telephone calls which originate with a particular
akin to electricity which, although an intangible property, may, nevertheless, be caller and terminates with the called party. He insisted that telephone calls are
appropriated and be the subject of theft. Such service over a period of time for a considered privileged communications under the Constitution and cannot be
consideration is the business that PLDT provides to its customers, which enables considered as "the property of PLDT." He further argued that there is no kinship
the latter to send various messages to installed recipients. The service rendered between telephone calls and electricity or gas, as the latter are forms of energy
by PLDT is akin to merchandise which has specific value, and therefore, capable which are generated and consumable, and may be considered as personal
of appropriation by another, as in this case, through the ISR operations
property because of such characteristic. On the other hand, the movant argued,
conducted by the movant and his co-accused.
the telephone business is not a form of energy but is an activity.
The prosecution further alleged that "international business calls and revenues
constitute personal property envisaged in Article 308 of the Revised Penal
Code." Moreover, the intangible telephone services/facilities belong to PLDT and
not to the movant and the other accused, because they have no telephone
services and facilities of their own duly authorized by the NTC; thus, the taking
by the movant and his co-accused of PLDT services was with intent to gain and
without the latters consent.
The prosecution pointed out that the accused, as well as the movant, were paid
in exchange for their illegal appropriation and use of PLDTs telephone services
and facilities; on the other hand, the accused did not pay a single centavo for
their illegal ISR operations. Thus, the acts of the accused were akin to the use of
a "jumper" by a consumer to deflect the current from the house electric meter,
thereby enabling one to steal electricity. The prosecution emphasized that its
position is fortified by the Resolutions of the Department of Justice in PLDT v.
Tiongson, et al. (I.S. No. 97-0925) and in PAOCTF-PLDT v. Elton John Tuason, et
al. (I.S. No. 2000-370) which were issued on August 14, 2000 finding probable
cause for theft against the respondents therein.

In its Order19 dated December 11, 2001, the RTC denied the movants Motion
for Reconsideration. This time, it ruled that what was stolen from PLDT was its
"business" because, as alleged in the Amended Information, the international
long distance calls made through the facilities of PLDT formed part of its
business. The RTC noted that the movant was charged with stealing the business
of PLDT. To support its ruling, it cited Strochecker v. Ramirez,20 where the Court
ruled that interest in business is personal property capable of appropriation. It
further declared that, through their ISR operations, the movant and his coaccused deprived PLDT of fees for international long distance calls, and that the
ISR used by the movant and his co-accused was no different from the "jumper"
used for stealing electricity.
Laurel then filed a Petition for Certiorari with the CA, assailing the Order of the
RTC. He alleged that the respondent judge gravely abused his discretion in
denying his Motion to Quash the Amended Information.21 As gleaned from the
material averments of the amended information, he was charged with stealing
the international long distance calls belonging to PLDT, not its business.
Moreover, the RTC failed to distinguish between the business of PLDT (providing

services for international long distance calls) and the revenues derived
therefrom. He opined that a "business" or its revenues cannot be considered as
personal property under Article 308 of the Revised Penal Code, since a
"business" is "(1) a commercial or mercantile activity customarily engaged in as
a means of livelihood and typically involving some independence of judgment
and power of decision; (2) a commercial or industrial enterprise; and (3) refers
to transactions, dealings or intercourse of any nature." On the other hand, the
term "revenue" is defined as "the income that comes back from an investment
(as in real or personal property); the annual or periodical rents, profits, interests,
or issues of any species of real or personal property."22
Laurel further posited that an electric companys business is the production and
distribution of electricity; a gas companys business is the production and/or
distribution of gas (as fuel); while a water companys business is the production
and distribution of potable water. He argued that the "business" in all these
cases is the commercial activity, while the goods and merchandise are the
products of such activity. Thus, in prosecutions for theft of certain forms of
energy, it is the electricity or gas which is alleged to be stolen and not the
"business" of providing electricity or gas. However, since a telephone company
does not produce any energy, goods or merchandise and merely renders a
service or, in the words of PLDT, "the connection and interconnection to their
telephone lines/facilities," such service cannot be the subject of theft as defined
in Article 308 of the Revised Penal Code.23

identity module" and "any attempt to duplicate the data on another cellular
phone without the consent of a public telecommunications entity would be
punishable by law."26 Thus, Laurel concluded, "there is no crime if there is no
law punishing the crime."
On August 30, 2002, the CA rendered judgment dismissing the petition.27 The
appellate court ruled that a petition for certiorari under Rule 65 of the Rules of
Court was not the proper remedy of the petitioner. On the merits of the
petition, it held that while business is generally an activity
which is abstract and intangible in form, it is nevertheless considered "property"
under Article 308 of the Revised Penal Code. The CA opined that PLDTs business
of providing international calls is personal property which may be the object of
theft, and cited United States v. Carlos28 to support such conclusion. The
tribunal also cited Strochecker v. Ramirez,29 where this Court ruled that onehalf interest in a days business is personal property under Section 2 of Act No.
3952, otherwise known as the Bulk Sales Law. The appellate court held that the
operations of the ISR are not subsumed in the charge for violation of P.D. No.
401.
Laurel, now the petitioner, assails the decision of the CA, contending that THE COURT OF APPEALS ERRED IN RULING THAT THE PERSONAL PROPERTY
ALLEGEDLY STOLEN PER THE INFORMATION IS NOT THE "INTERNATIONAL LONG
DISTANCE CALLS" BUT THE "BUSINESS OF PLDT."

He further declared that to categorize "business" as personal property under

Article 308 of the Revised Penal Code would lead to absurd consequences; in
prosecutions for theft of gas, electricity or water, it would then be permissible to THE COURT OF APPEALS ERRED IN RULING THAT THE TERM "BUSINESS" IS
allege in the Information that it is the gas business, the electric business or the
PERSONAL PROPERTY WITHIN THE MEANING OF ART. 308 OF THE REVISED
water business which has been stolen, and no longer the merchandise produced PENAL CODE.30
by such enterprise.24
Petitioner avers that the petition for a writ of certiorari may be filed to nullify an
Laurel further cited the Resolution of the Secretary of Justice in Piltel v.
interlocutory order of the trial court which was issued with grave abuse of
Mendoza,25 where it was ruled that the Revised Penal Code, legislated as it was discretion amounting to excess or lack of jurisdiction. In support of his petition
before present technological advances were even conceived, is not adequate to before the Court, he reiterates the arguments in his pleadings filed before the
address the novel means of "stealing" airwaves or airtime. In said resolution, it
CA. He further claims that while the right to carry on a business or an interest or
was noted that the inadequacy prompted the filing of Senate Bill 2379 (sic)
participation in business is considered property under the New Civil Code, the
entitled "The Anti-Telecommunications Fraud of 1997" to deter cloning of
term "business," however, is not. He asserts that the Philippine Legislature,
cellular phones and other forms of communications fraud. The said bill "aims to which approved the Revised Penal Code way back in January 1, 1932, could not
protect in number (ESN) (sic) or Capcode, mobile identification number (MIN),
have contemplated to include international long distance calls and "business" as
electronic-international mobile equipment identity (EMEI/IMEI), or subscriber
personal property under Article 308 thereof.

In its comment on the petition, the Office of the Solicitor General (OSG)
maintains that the amended information clearly states all the essential elements
of the crime of theft. Petitioners interpretation as to whether an "international
long distance call" is personal property under the law is inconsequential, as a
reading of the amended information readily reveals that specific acts and
circumstances were alleged charging Baynet, through its officers, including
petitioner, of feloniously taking, stealing and illegally using international long
distance calls belonging to respondent PLDT by conducting ISR operations, thus,
"routing and completing international long distance calls using lines, cables,
antenna and/or airwave frequency which connect directly to the local or
domestic exchange facilities of the country where the call is destined." The OSG
maintains that the international long distance calls alleged in the amended
information should be construed to mean "business" of PLDT, which, while
abstract and intangible in form, is personal property susceptible of
appropriation.31 The OSG avers that what was stolen by petitioner and his coaccused is the business of PLDT providing international long distance calls which,
though intangible, is personal property of the PLDT.32
For its part, respondent PLDT asserts that personal property under Article 308 of
the Revised Penal Code comprehends intangible property such as electricity and
gas which are valuable articles for merchandise, brought and sold like other
personal property, and are capable of appropriation. It insists that the business
of international calls and revenues constitute personal property because the
same are valuable articles of merchandise. The respondent reiterates that
international calls involve (a) the intangible telephone services that are being
offered by it, that is, the connection and interconnection to the telephone
network, lines or facilities; (b) the use of its telephone network, lines or facilities
over a period of time; and (c) the income derived in connection therewith.33
PLDT further posits that business revenues or the income derived in connection
with the rendition of such services and the use of its telephone network, lines or
facilities are personal properties under Article 308 of the Revised Penal Code; so
is the use of said telephone services/telephone network, lines or facilities which
allow electronic voice signals to pass through the same and ultimately to the
called partys number. It is akin to electricity which, though intangible property,
may nevertheless be appropriated and can be the object of theft. The use of
respondent PLDTs telephone network, lines, or facilities over a period of time
for consideration is the business that it provides to its customers, which enables
the latter to send various messages to intended recipients. Such use over a

period of time is akin to merchandise which has value and, therefore, can be
appropriated by another. According to respondent PLDT, this is what actually
happened when petitioner Laurel and the other accused below conducted illegal
ISR operations.34
The petition is meritorious.
The issues for resolution are as follows: (a) whether or not the petition for
certiorari is the proper remedy of the petitioner in the Court of Appeals; (b)
whether or not international telephone calls using Bay Super Orient Cards
through the telecommunication services provided by PLDT for such calls, or, in
short, PLDTs business of providing said telecommunication services, are proper
subjects of theft under Article 308 of the Revised Penal Code; and (c) whether or
not the trial court committed grave abuse of discretion amounting to excess or
lack of jurisdiction in denying the motion of the petitioner to quash the
amended information.
On the issue of whether or not the petition for certiorari instituted by the
petitioner in the CA is proper, the general rule is that a petition for certiorari
under Rule 65 of the Rules of Court, as amended, to nullify an order denying a
motion to quash the Information is inappropriate because the aggrieved party
has a remedy of appeal in the ordinary course of law. Appeal and certiorari are
mutually exclusive of each other. The remedy of the aggrieved party is to
continue with the case in due course and, when an unfavorable judgment is
rendered, assail the order and the decision on appeal. However, if the trial court
issues the order denying the motion to quash the Amended Information with
grave abuse of discretion amounting to excess or lack of jurisdiction, or if such
order is patently erroneous, or null and void for being contrary to the
Constitution, and the remedy of appeal would not afford adequate and
expeditious relief, the accused may resort to the extraordinary remedy of
certiorari.35 A special civil action for certiorari is also available where there are
special circumstances clearly demonstrating the inadequacy of an appeal. As this
Court held in Bristol Myers Squibb (Phils.), Inc. v. Viloria:36
Nonetheless, the settled rule is that a writ of certiorari may be granted in cases
where, despite availability of appeal after trial, there is at least a prima facie
showing on the face of the petition and its annexes that: (a) the trial court
issued the order with grave abuse of discretion amounting to lack of or in excess
of jurisdiction; (b) appeal would not prove to be a speedy and adequate remedy;
(c) where the order is a patent nullity; (d) the decision in the present case will

arrest future litigations; and (e) for certain considerations such as public welfare trial court denying the motion of the petitioner to quash the Amended
and public policy.37
Information is a patent nullity.
In his petition for certiorari in the CA, petitioner averred that the trial court
committed grave abuse of its discretion amounting to excess or lack of
jurisdiction when it denied his motion to quash the Amended Information
despite his claim that the material allegations in the Amended Information do
not charge theft under Article 308 of the Revised Penal Code, or any offense for
that matter. By so doing, the trial court deprived him of his constitutional right
to be informed of the nature of the charge against him. He further averred that
the order of the trial court is contrary to the constitution and is, thus, null and
void. He insists that he should not be compelled to undergo the rigors and
tribulations of a protracted trial and incur expenses to defend himself against a
non-existent charge.

On the second issue, we find and so hold that the international telephone calls
placed by Bay Super Orient Card holders, the telecommunication services
provided by PLDT and its business of providing said services are not personal
properties under Article 308 of the Revised Penal Code. The construction by the
respondents of Article 308 of the said Code to include, within its coverage, the
aforesaid international telephone calls, telecommunication services and
business is contrary to the letter and intent of the law.

The rule is that, penal laws are to be construed strictly. Such rule is founded on
the tenderness of the law for the rights of individuals and on the plain principle
that the power of punishment is vested in Congress, not in the judicial
department. It is Congress, not the Court, which is to define a crime, and ordain
Petitioner is correct.
its punishment.44 Due respect for the prerogative of Congress in defining
crimes/felonies constrains the Court to refrain from a broad interpretation of
An information or complaint must state explicitly and directly every act or
penal laws where a "narrow interpretation" is appropriate. The Court must take
omission constituting an offense38 and must allege facts establishing conduct
heed to language, legislative history and purpose, in order to strictly determine
that a penal statute makes criminal;39 and describes the property which is the
the wrath and breath of the conduct the law forbids.45 However, when the
subject of theft to advise the accused with reasonable certainty of the
congressional purpose is unclear, the court must apply the rule of lenity, that is,
accusation he is called upon to meet at the trial and to enable him to rely on the ambiguity concerning the ambit of criminal statutes should be resolved in favor
judgment thereunder of a subsequent prosecution for the same offense.40 It
of lenity.46
must show, on its face, that if the alleged facts are true, an offense has been
committed. The rule is rooted on the constitutional right of the accused to be
Penal statutes may not be enlarged by implication or intent beyond the fair
informed of the nature of the crime or cause of the accusation against him. He
meaning of the language used; and may not be held to include offenses other
cannot be convicted of an offense even if proven unless it is alleged or
than those which are clearly described, notwithstanding that the Court may
necessarily included in the Information filed against him.
think that Congress should have made them more comprehensive.47 Words and
phrases in a statute are to be construed according to their common meaning
As a general prerequisite, a motion to quash on the ground that the Information and accepted usage.
does not constitute the offense charged, or any offense for that matter, should
be resolved on the basis of said allegations whose truth and veracity are
As Chief Justice John Marshall declared, "it would be dangerous, indeed, to carry
hypothetically committed;41 and on additional facts admitted or not denied by the principle that a case which is within the reason or
the prosecution.42 If the facts alleged in the Information do not constitute an
offense, the complaint or information should be quashed by the court.43
mischief of a statute is within its provision, so far as to punish a crime not
enumerated in the statute because it is of equal atrocity, or of kindred character
We have reviewed the Amended Information and find that, as mentioned by the with those which are enumerated.48 When interpreting a criminal statute that
petitioner, it does not contain material allegations charging the petitioner of
does not explicitly reach the conduct in question, the Court should not base an
theft of personal property under Article 308 of the Revised Penal Code. It, thus, expansive reading on inferences from subjective and variable understanding.49
behooved the trial court to quash the Amended Information. The Order of the

Article 308 of the Revised Penal Code defines theft as follows:

Art. 308. Who are liable for theft. Theft is committed by any person who, with
intent to gain but without violence, against or intimidation of persons nor force
upon things, shall take personal property of another without the latters
consent.
The provision was taken from Article 530 of the Spanish Penal Code which
reads:
1. Los que con nimo de lucrarse, y sin violencia o intimidacin en las personas
ni fuerza en las cosas, toman las cosas muebles ajenas sin la voluntad de su
dueo.50

subject of theft because the same cannot be "taken" from the place it is found
and is occupied or appropriated.
Solamente las cosas muebles y corporales pueden ser objeto de hurto. La
sustraccin de cosas inmuebles y la cosas incorporales (v. gr., los derechos, las
ideas) no puede integrar este delito, pues no es posible asirlas, tomarlas, para
conseguir su apropiacin. El Codigo emplea la expresin "cosas mueble" en el
sentido de cosa que es susceptible de ser llevada del lugar donde se encuentra,
como dinero, joyas, ropas, etctera, asi que su concepto no coincide por
completo con el formulado por el Codigo civil (arts. 335 y 336).54

Thus, movable properties under Article 308 of the Revised Penal Code should be
distinguished from the rights or interests to which they relate. A naked right
existing merely in contemplation of law, although it may be very valuable to the
For one to be guilty of theft, the accused must have an intent to steal (animus
person who is entitled to exercise it, is not the subject of theft or larceny.55
furandi) personal property, meaning the intent to deprive another of his
Such rights or interests are intangible and cannot be "taken" by another. Thus,
ownership/lawful possession of personal property which intent is apart from
right to produce oil, good will or an interest in business, or the right to engage in
and concurrently with the general criminal intent which is an essential element business, credit or franchise are properties. So is the credit line represented by a
of a felony of dolo (dolus malus).
credit card. However, they are not proper subjects of theft or larceny because
they are without form or substance, the mere "breath" of the Congress. On the
An information or complaint for simple theft must allege the following elements: other hand, goods, wares and merchandise of businessmen and credit cards
(a) the taking of personal property; (b) the said property belongs to another; (c) issued to them are movable properties with physical and material existence and
the taking be done with intent to gain; and (d) the taking be accomplished
may be taken by another; hence, proper subjects of theft.
without the use of violence or intimidation of person/s or force upon things.51
There is "taking" of personal property, and theft is consummated when the
One is apt to conclude that "personal property" standing alone, covers both
offender unlawfully acquires possession of personal property even if for a short
tangible and intangible properties and are subject of theft under the Revised
time; or if such property is under the dominion and control of the thief. The
Penal Code. But the words "Personal property" under the Revised Penal Code
taker, at some particular amount, must have obtained complete and absolute
must be considered in tandem with the word "take" in the law. The statutory
possession and control of the property adverse to the rights of the owner or the
definition of "taking" and movable property indicates that, clearly, not all
lawful possessor thereof.56 It is not necessary that the property be actually
personal properties may be the proper subjects of theft. The general rule is that, carried away out of the physical possession of the lawful possessor or that he
only movable properties which have physical or material existence and
should have made his escape with it.57 Neither asportation nor actual manual
susceptible of occupation by another are proper objects of theft.52 As explained possession of property is required. Constructive possession of the thief of the
by Cuelo Callon: "Cosa juridicamente es toda sustancia corporal, material,
property is enough.58
susceptible de ser aprehendida que tenga un valor cualquiera."53
The essence of the element is the taking of a thing out of the possession of the
According to Cuello Callon, in the context of the Penal Code, only those movable owner without his privity and consent and without animus revertendi.59
properties which can be taken and carried from the place they are found are
proper subjects of theft. Intangible properties such as rights and ideas are not
Taking may be by the offenders own hands, by his use of innocent persons
without any felonious intent, as well as any mechanical device, such as an access

device or card, or any agency, animate or inanimate, with intent to gain. Intent
to gain includes the unlawful taking of personal property for the purpose of
deriving utility, satisfaction, enjoyment and pleasure.60

and labor of men for the purpose of livelihood or profit. It embraces everything
that which a person can be employed.66 Business may also mean employment,
occupation or profession. Business is also defined as a commercial activity for
gain benefit or advantage.67 Business, like services in business, although are
We agree with the contention of the respondents that intangible properties
properties, are not proper subjects of theft under the Revised Penal Code
such as electrical energy and gas are proper subjects of theft. The reason for this because the same cannot be "taken" or "occupied." If it were otherwise, as
is that, as explained by this Court in United States v. Carlos61 and United States claimed by the respondents, there would be no juridical difference between the
v. Tambunting,62 based on decisions of the Supreme Court of Spain and of the
taking of the business of a person or the services provided by him for gain, vis-courts in England and the United States of America, gas or electricity are capable vis, the taking of goods, wares or merchandise, or equipment comprising his
of appropriation by another other than the owner. Gas and electrical energy
business.68 If it was its intention to include "business" as personal property
may be taken, carried away and appropriated. In People v. Menagas,63 the
under Article 308 of the Revised Penal Code, the Philippine Legislature should
Illinois State Supreme Court declared that electricity, like gas, may be seen and have spoken in language that is clear and definite: that business is personal
felt. Electricity, the same as gas, is a valuable article of merchandise, bought and property under Article 308 of the Revised Penal Code.69
sold like other personal property and is capable of appropriation by another. It is
a valuable article of merchandise, bought and sold like other personal property, We agree with the contention of the petitioner that, as gleaned from the
susceptible of being severed from a mass or larger quantity and of being
material averments of the Amended Information, he is charged of "stealing the
transported from place to place. Electrical energy may, likewise, be taken and
international long distance calls belonging to PLDT" and the use thereof,
carried away. It is a valuable commodity, bought and sold like other personal
through the ISR. Contrary to the claims of the OSG and respondent PLDT, the
property. It may be transported from place to place. There is nothing in the
petitioner is not charged of stealing P20,370,651.95 from said respondent. Said
nature of gas used for illuminating purposes which renders it incapable of being amount of P20,370,651.95 alleged in the Amended Information is the aggregate
feloniously taken and carried away.
amount of access, transmission or termination charges which the PLDT expected
from the international long distance calls of the callers with the use of Baynet
In People ex rel Brush Electric Illuminating Co. v. Wemple,64 the Court of
Super Orient Cards sold by Baynet Co. Ltd.
Appeals of New York held that electric energy is manufactured and sold in
determinate quantities at a fixed price, precisely as are coal, kerosene oil, and
In defining theft, under Article 308 of the Revised Penal Code, as the taking of
gas. It may be conveyed to the premises of the consumer, stored in cells of
personal property without the consent of the owner thereof, the Philippine
different capacity known as an accumulator; or it may be sent through a wire,
legislature could not have contemplated the human voice which is converted
just as gas or oil may be transported either in a close tank or forced through a
into electronic impulses or electrical current which are transmitted to the party
pipe. Having reached the premises of the consumer, it may be used in any way
called through the PSTN of respondent PLDT and the ISR of Baynet Card Ltd.
he may desire, being, like illuminating gas, capable of being transformed either within its coverage. When the Revised Penal Code was approved, on December
into heat, light, or power, at the option of the purchaser. In Woods v. People,65 8, 1930, international telephone calls and the transmission and routing of
the Supreme Court of Illinois declared that there is nothing in the nature of gas electronic voice signals or impulses emanating from said calls, through the PSTN,
used for illuminating purposes which renders it incapable of being feloniously
IPL and ISR, were still non-existent. Case law is that, where a legislative history
taken and carried away. It is a valuable article of merchandise, bought and sold fails to evidence congressional awareness of the scope of the statute claimed by
like other personal property, susceptible of being severed from a mass or larger the respondents, a narrow interpretation of the law is more consistent with the
quantity and of being transported from place to place.
usual approach to the construction of the statute. Penal responsibility cannot be
extended beyond the fair scope of the statutory mandate.70
Gas and electrical energy should not be equated with business or services
provided by business entrepreneurs to the public. Business does not have an
Respondent PLDT does not acquire possession, much less, ownership of the
exact definition. Business is referred as that which occupies the time, attention voices of the telephone callers or of the electronic voice signals or current

emanating from said calls. The human voice and the electronic voice signals or
current caused thereby are intangible and not susceptible of possession,
occupation or appropriation by the respondent PLDT or even the petitioner, for
that matter. PLDT merely transmits the electronic voice signals through its
facilities and equipment. Baynet Card Ltd., through its operator, merely
intercepts, reroutes the calls and passes them to its toll center. Indeed, the
parties called receive the telephone calls from Japan.

law, neither time nor services may be taken and occupied or appropriated.76 A
service is generally not considered property and a theft of service would not,
therefore, constitute theft since there can be no caption or asportation.77
Neither is the unauthorized use of the equipment and facilities of PLDT by the
petitioner theft under the aforequoted provision of the Revised Penal Code.78

If it was the intent of the Philippine Legislature, in 1930, to include services to be

the subject of theft, it should have incorporated the same in Article 308 of the
In this modern age of technology, telecommunications systems have become so Revised Penal Code. The Legislature did not. In fact, the Revised Penal Code
tightly merged with computer systems that it is difficult to know where one
does not even contain a definition of services.
starts and the other finishes. The telephone set is highly computerized and
allows computers to communicate across long distances.71 The instrumentality If taking of telecommunication services or the business of a person, is to be
at issue in this case is not merely a telephone but a telephone inexplicably linked proscribed, it must be by special statute79 or an amendment of the Revised
to a computerized communications system with the use of Baynet Cards sold by Penal Code. Several states in the United States, such as New York, New Jersey,
the Baynet Card Ltd. The corporation uses computers, modems and software,
California and Virginia, realized that their criminal statutes did not contain any
among others, for its ISR.72
provisions penalizing the theft of services and passed laws defining and
penalizing theft of telephone and computer services. The Pennsylvania Criminal
The conduct complained of by respondent PLDT is reminiscent of "phreaking" (a Statute now penalizes theft of services, thus:
slang term for the action of making a telephone system to do something that it
normally should not allow by "making the phone company bend over and grab
(a) Acquisition of services. -its ankles"). A "phreaker" is one who engages in the act of manipulating phones
and illegally markets telephone services.73 Unless the phone company replaces (1) A person is guilty of theft if he intentionally obtains services for himself or for
all its hardware, phreaking would be impossible to stop. The phone companies
another which he knows are available only for compensation, by deception or
in North America were impelled to replace all their hardware and adopted full
threat, by altering or tampering with the public utility meter or measuring
digital switching system known as the Common Channel Inter Office Signaling.
device by which such services are delivered or by causing or permitting such
Phreaking occurred only during the 1960s and 1970s, decades after the
altering or tampering, by making or maintaining any unauthorized connection,
Revised Penal Code took effect.
whether physically, electrically or inductively, to a distribution or transmission
line, by attaching or maintaining the attachment of any unauthorized device to
The petitioner is not charged, under the Amended Information, for theft of
any cable, wire or other component of an electric, telephone or cable television
telecommunication or telephone services offered by PLDT. Even if he is, the
system or to a television receiving set connected to a cable television system, by
term "personal property" under Article 308 of the Revised Penal Code cannot be making or maintaining any unauthorized modification or alteration to any device
interpreted beyond its seams so as to include "telecommunication or telephone installed by a cable television system, or by false token or other trick or artifice
services" or computer services for that matter. The word "service" has a variety to avoid payment for the service.
of meanings dependent upon the context, or the sense in which it is used; and,
in some instances, it may include a sale. For instance, the sale of food by
In the State of Illinois in the United States of America, theft of labor or services
restaurants is usually referred to as "service," although an actual sale is
or use of property is penalized:
involved.74 It may also mean the duty or labor to be rendered by one person to
another; performance of labor for the benefit of another.75 In the case of PLDT, (a) A person commits theft when he obtains the temporary use of property,
it is to render local and international telecommunications services and such
labor or services of another which are available only for hire, by means of threat
other services as authorized by the CPCA issued by the NTC. Even at common

or deception or knowing that such use is without the consent of the person
providing the property, labor or services.

In the Philippines, Congress has not amended the Revised Penal Code to include
theft of services or theft of business as felonies. Instead, it approved a law,
Republic Act No. 8484, otherwise known as the Access Devices Regulation Act of
In 1980, the drafters of the Model Penal Code in the United States of America
1998, on February 11, 1998. Under the law, an access device means any card,
arrived at the conclusion that labor and services, including professional services, plate, code, account number, electronic serial number, personal identification
have not been included within the traditional scope of the term "property" in
number and other telecommunication services, equipment or instrumentalitiesordinary theft statutes. Hence, they decided to incorporate in the Code Section identifier or other means of account access that can be used to obtain money,
223.7, which defines and penalizes theft of services, thus:
goods, services or any other thing of value or to initiate a transfer of funds other
than a transfer originated solely by paper instrument. Among the prohibited
(1) A person is guilty of theft if he purposely obtains services which he knows are acts enumerated in Section 9 of the law are the acts of obtaining money or
available only for compensation, by deception or threat, or by false token or
anything of value through the use of an access device, with intent to defraud or
other means to avoid payment for the service. "Services" include labor,
intent to gain and fleeing thereafter; and of effecting transactions with one or
professional service, transportation, telephone or other public service,
more access devices issued to another person or persons to receive payment or
accommodation in hotels, restaurants or elsewhere, admission to exhibitions,
any other thing of value. Under Section 11 of the law, conspiracy to commit
use of vehicles or other movable property. Where compensation for service is
access devices fraud is a crime. However, the petitioner is not charged of
ordinarily paid immediately upon the rendering of such service, as in the case of violation of R.A. 8484.
hotels and restaurants, refusal to pay or absconding without payment or offer to
pay gives rise to a presumption that the service was obtained by deception as to Significantly, a prosecution under the law shall be without prejudice to any
intention to pay; (2) A person commits theft if, having control over the
liability for violation of any provisions of the Revised Penal Code inclusive of
disposition of services of others, to which he is not entitled, he knowingly diverts theft under Rule 308 of the Revised Penal Code and estafa under Article 315 of
such services to his own benefit or to the benefit of another not entitled
the Revised Penal Code. Thus, if an individual steals a credit card and uses the
thereto.
same to obtain services, he is liable of the following: theft of the credit card
under Article 308 of the Revised Penal Code; violation of Republic Act No. 8484;
Interestingly, after the State Supreme Court of Virginia promulgated its decision and estafa under Article 315(2)(a) of the Revised Penal Code with the service
in Lund v. Commonwealth,80 declaring that neither time nor services may be
provider as the private complainant. The petitioner is not charged of estafa
taken and carried away and are not proper subjects of larceny, the General
before the RTC in the Amended Information.
Assembly of Virginia enacted Code No. 18-2-98 which reads:
Section 33 of Republic Act No. 8792, Electronic Commerce Act of 2000 provides:
Computer time or services or data processing services or information or data
stored in connection therewith is hereby defined to be property which may be
Sec. 33. Penalties. The following Acts shall be penalized by fine and/or
the subject of larceny under 18.2-95 or 18.2-96, or embezzlement under
imprisonment, as follows:
18.2-111, or false pretenses under 18.2-178.
a) Hacking or cracking which refers to unauthorized access into or interference
In the State of Alabama, Section 13A-8-10(a)(1) of the Penal Code of Alabama of in a computer system/server or information and communication system; or any
1975 penalizes theft of services:
access in order to corrupt, alter, steal, or destroy using a computer or other
similar information and communication devices, without the knowledge and
"A person commits the crime of theft of services if: (a) He intentionally obtains
consent of the owner of the computer or information and communications
services known by him to be available only for compensation by deception,
system, including the introduction of computer viruses and the like, resulting on
threat, false token or other means to avoid payment for the services "
the corruption, destruction, alteration, theft or loss of electronic data messages
or electronic documents shall be punished by a minimum fine of One hundred

thousand pesos (P100,000.00) and a maximum commensurate to the damage

incurred and a mandatory imprisonment of six (6) months to three (3) years.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The assailed Orders
of the Regional Trial Court and the Decision of the Court of Appeals are
REVERSED and SET ASIDE. The Regional Trial Court is directed to issue an order
granting the motion of the petitioner to quash the Amended Information.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:
(No part)
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO,
Associate Justice
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
(On leave)
MINITA V. CHICO-NAZARIO*
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
* On leave.

1 Penned by Associate Justice Bienvenido L. Reyes, with Associate Justices

Roberto A. Barrios and Edgardo F. Sundiam, concurring.
2 an act further amending act no. 3436, as amended, "xxx consolidating the
terms and conditions of the franchise granted to [pldt], and extending the said
franchise by twenty-five (25) years from the expiration thereof xxx."
3 Rollo, pp. 129-130.
4 Id. at 131.
5 Id. at 131, 137.
6 Id.
7 Id. at 138.
8 Id. at 134.
9 Id. at 140.
10 Id. at 142-146.
11 Rollo, pp. 243-246.
12 NOW, THEREFORE, I FERDINAND E. MARCOS, President of the Philippines, by
virtue of the powers vested in me by the Constitution a Commander-in-Chief of
all the Armed Forces of the Philippines, and pursuant to Proclamation No. 1081
dated September 21, 1972, and General Order No. 1 dated September 22, 1972,
as amended, do hereby order and decree that any person who installs any
water, electrical or telephone connection without previous authority from the
Metropolitan Waterworks and Sewerage System, the Manila Electric Company
or the Philippine Long Distance Telephone Company, as the case may be;
tampers and/or uses tampered water or electrical meters or jumpers or other
devices whereby water or electricity is stolen; steals or pilfers water and/or
electric meters or water, electric and/or telephone wires; knowingly possesses
stolen or pilfered water and/or electrical meters as well as stolen or pilfered
water, electrical and/or telephone wires, shall, upon conviction, be punished by
prision correccional in its minimum period or a fine ranging from two thousand
to six thousand pesos, or both. If the violation is committed with the connivance
or permission of an employee or officer of the Metropolitan Waterworks and
Sewerage System, or the Manila Electric Company, or the Philippine Long
Distance Telephone Company, such employee or officer shall, upon conviction,
be punished by a penalty one degree lower than prision correccional in its
minimum period and forthwith be dismissed and perpetually disqualified from
employment in any public or private utility or service company.
13 Rollo, pp. 57-58. (Underscoring supplied)
14 Id. at 67-76.
15 Id. at 69. (Emphasis supplied)
16 Id. at 77-80.

17 Id. at 81-86.
18 31 Phil. 494 (1915).
19 Rollo, pp. 87-94.
20 44 Phil. 933, 935 (1922).
21 CA rollo, p. 6.
22 Id. at 9-11.
23 Id.
24 Id.
25 Resolution No. 149, Series of 1999 dated April 16, 1999 (I.S. No. 96-3884),
rollo, pp. 95-97.
26 Id.
27 Id. at 32-47.
28 21 Phil. 553 (1911).
29 Supra note 20, at 935.
30 Rollo, pp. 18-19.
31 Id. at 689.
32 Id. at 691.
33 Id. at 669-670.
34 Rollo, p. 670.
35 Madarang v. Court of Appeals, G.R. No. 143044, July 14, 2005, 463 SCRA 318,
327 (2005).
36 G.R. No. 148156, September 27, 2004, 439 SCRA 202 (2000).
37 Id. at 211.
38 Section 9, Rule 110 of the Revised Rules of Criminal Procedure.
39 People v. Weg, 450 N.Y.S.2d 957 (1982).
40 Clines v. Commonwealth, 298 S.W. 1107 (1927).
41 Santiago v. Garchitorena, G.R. No. 109266, December 2, 1993, 228 SCRA 214.
42 Garcia v. Court of Appeals, 334 Phil. 621, 634 (1997); People v. Navarro, 75
Phil. 516, 518 (1945).
43 Section 3(a), Rule 117 of the 2000 Rules of Criminal Procedure.
44 United States v. Wiltberger, 18 U.S. 76 (1820).
45 Dowling v. United States, 473 U.S. 207 (1985).
46 Liparota v. United States, 105 S. Ct. 2084 (1985).
47 Kelley v. State, 119 N.E.2d 322 (1954); State v. McGraw, 480 N.E.2d 552
(1985)
48 United States v. Wiltberger, supra note 44.
49 Dowling v. United States, supra note 45.
50 Viada, codigo penal reformado de 1870, concordado y comentado, 219.

The felony has the following elements:

(1) Apoderamiento de una cosa mueble; (2) Que la cosa mueble sea ajena; (3)
Que el apoderamiento se verifique con intencin de lucro; (4) Que se tome la
cosa sin la voluntad de su dueo; (5) Que se realice el apoderamiento de la cosa
sin violencia intimidacin en las personas ni fuerza en las cosas (Viada, 220-221).
51 People v. Sison, 379 Phil. 363, 384 (2000); People v. Bustinera, G.R. No.
148233, June 8, 2004, 431 SCRA 284, 291.
52 Cuello Callon, Derecho Penal, Tomo II, p. 724.
53 Id.
54 See note 52, p. 725. (Underscoring supplied)
55 36 C.J.S. 737.
56 People v. Ashworth, 222 N.Y.S. 24 (1927).
57 People v. Salvilla, G.R. No. 86163, April 26, 1990, 184 SCRA 671, 677 (1990).
58 Harris v. State, 14 S.W. 390 (1890).
59 Woods v. People, 78 N.E. 607 (1906).
60 Villacorta v. Insurance Commission, G.R. No. 54171, October 28, 1980, 100
SCRA 467.
61 Supra note 28.
62 41 Phil. 364 (1921).
63 11 N.E.2d 403 (1937).
64 29 N.E. 808 (1892). (Emphasis supplied)
65 Supra note 59 (Emphasis supplied)
66 Doggett v. Burnet, 65 F.2d 191 (1933).
67 Blacks Law Dictionary, 5th ed., p. 179; Union League Club v. Johnson, 108
P.2d 487, 490 (1940).
68 United States v. McCraken, 19 C.M.R. 876 (1955).
69 People v. Tansey, 593 N.Y.S. 2d 426 (1992).
70 People v. Case, 42 N.Y.S. 2d 101.
71 Commonwealth v. Gerulis, 616 A.2d 686 (1992).
72 Rollo, p. 138.
73 Commonwealth v. Gerulis, supra note 71.
74 Central Power and Light Co. v. State, 165 S.W. 2d 920 (1942).
75 Blacks Law Dictionary, p. 1227.
76 Lund v. Commonwealth, 232 S.E.2d 745 (1977); 50 Am. Jur. 2d Larceny, p. 83.
77 Imbau, Thomson, Moenssens, Criminal Law, Second Edition, p. 6247, 2
Wharton Criminal Law, Prodded , 604:369.
78 Id. at 746; Commonwealth v. Rivera, 583 N.E.2d 867 (1991).
79 People v. Tansey, supra note 69.
80 See note 76.

Republic of the Philippines

SUPREME COURT
Manila

Hence, the petition at bar, premised on the following backdrop lifted from the
text of the challenged decision:
The facts of the case as related by the trial court are, as follows:

THIRD DIVISION

G.R. No. 98382 May 17, 1993

PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS and EPIFANIO DE LA CRUZ, respondents.

This is a verified complaint brought by the plaintiff for the reconveyance to him
(and resultant damages) of two (2) parcels of land mortgaged by him to the
defendant Philippine National Bank (Manila), which the defendant allegedly
unlawfully foreclosed. The defendant then consolidated ownership unto itself,
and subsequently sold the parcels to third parties. The amended Answer of the
defendant states on the other hand that the extrajudicial foreclosure,
consolidation of ownership, and subsequent sale to the third parties were all
valid, the bank therefore counterclaims for damages and other equitable
remedies.

Santiago, Jr., Vidad, Corpus & Associates for petitioner.

xxx

xxx

xxx

Pedro R. Lazo for spouses-intervenors.

From the evidence and exhibits presented by both parties, the Court is of the
Rosendo G. Tansinsin, Jr. for private respondent.
opinion that the following facts have been proved: Two lots, located at Bunlo,
Bocaue, Bulacan (the first covered by Torrens Certificate No. 16743 and
possessed of an area of approximately 3,109 square meters: the second covered
by Torrens Certificate No. 5787, possessed of an area of around 610 square
MELO, J.:
meters, and upon which stood a residential-commercial building were
mortgaged to the defendant Philippine National Bank. The lots were under the
The notices of sale under Section 3 of Act No. 3135, as amended by Act No.
common names of the plaintiff (Epifanio dela Cruz), his brother (Delfin) and his
4118, on extra-judicial foreclosure of real estate mortgage are required to be
sister (Maria). The mortgage was made possible because of the grant by the
posted for not less than twenty days in at least three public places of the
latter two to the former of a special power of attorney to mortgage the lots to
municipality or city where the property is situated, and if such property is worth the defendant. The lots were mortgaged to guarantee the following promissory
more than four hundred pesos, such notices shall also be published once a week notes:
for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.
(1)
a promissory note for Pl2,000.00, dated September 2, 1958, and
payable within 69 days (date of maturity Nov. l0, 1958);
Respondent court, through Justice Filemon Mendoza with whom Justices
Campos, Jr. and Aldecoa, Jr. concurred, construed the publication of the notices (2)
a promissory note for P4,000.00, dated September 22, 1958, and
on March 28, April 11 and l2, 1969 as a fatal announcement and reversed the
payable within 49 days (date of maturity Nov. 10, 1958);
judgment appealed from by declaring void, inter alia, the auction sale of the
foreclosed pieces of realty, the final deed of sale, and the consolidation of
(3)
a promissory note for P4,000.00, dated June 30, 1.958 1 and payable
ownership (p. 27, Rollo).
within 120 days (date of maturity Nov. 10, 1958) See also Annex C of the
complaint itself).

[1
This date of June 30, 1958 is disputed by the plaintiff who claims that
the correct date is June 30, 1961, which is the date actually mentioned in the
promissory note. It is however difficult to believe the plaintiff's contention since
if it were true and correct, this would mean that nearly three (3) years elapsed
between the second and the third promissory note; that at the time the third
note was executed, the first two had not yet been paid by the plaintiff despite
the fact that the first two were supposed to be payable within 69 and 49 days
respectively. This state of affairs would have necessitated the renewal of said
two promissory notes. No such renewal was proved, nor was the renewal ever
alleged. Finally, and this is very significant: the third mentioned promissory note
states that the maturity date is Nov. 10, 1958. Now then, how could the loan
have been contracted on June 30, 1961? It will be observed that in the bank
records, the third mentioned promissory note was really executed on June 30,
1958 (See Exhs. 9 and 9-A). The Court is therefore inclined to believe that the
date "June 30, 1961" was a mere clerical error and hat the true and correct date
is June 1958. However, even assuming that the true and correct date is June 30,
1961, the fact still remains that the first two promissory notes had been
guaranteed by the mortgage of the two lots, and therefore, it was legal and
proper to foreclose on the lots for failure to pay said two promissory notes.

DISMISSED, for the Court does not believe that the complaint had been made in
bad faith.

On September 6, 1961, Atty. Ramon de los Reyes of the bank (PNB) presented
under Act No. 3135 a foreclosure petition of the two mortgaged lots before the
Sheriff's Office at Malolos, Bulacan; accordingly, the two lots were sold or
auctioned off on October 20, 1961 with the defendant PNB as the highest
bidder for P28,908.46. On March 7, 1963, Sheriff Leopoldo Palad executed a
Final Deed of Sale, in response to a letter-request by the Manager of the PNB
(Malolos Branch). On January 15, 1963 a Certificate of Sale in favor of the
defendant was executed by Sheriff Palad. The final Deed of Sale was registered
in the Bulacan Registry of Property on March 19, 1963. Inasmuch as the plaintiff
did not volunteer to buy back from the PNB the two lots, the PNB sold on June
4, 1970 the same to spouses Conrado de Vera and Marina de Vera in a "Deed of
Conditional Sale". (Decision, pp.3-5; Amended Record on Appeal, pp. 96-98).

II.

SO ORDERED. (Decision, p. B.; Amended Record on Appeal, p. 100)

Not satisfied with the judgment, plaintiff interposed the present appeal
assigning as errors the following:
I.
THE LOWER COURT ERRED IN HOLDING IN FOOTNOTE I OF ITS DECISION THAT IT
IS THEREFORE INCLINED TO BELIEVE THAT THE DATE "JUNE 30, 1962" WAS A
MERE CLERICAL ERROR AND THAT THE TRUE AND CORRECT DATE IS JUNE 30,
1958. IT ALSO ERRED IN HOLDING IN THE SAME FOOTNOTE I THAT "HOWEVER,
EVEN ASSUMING THAT THE TRUE AND CORRECT DATE IS JUNE 30, 1961, THE
FACT STILL REMAINS THAT THE FIRST TWO PROMISSORY NOTES HAD BEEN
GUARANTEED BY THE MORTGAGE OF THE TWO LOTS, AND THEREFORE, IT WAS
LEGAL AND PROPER TO FORECLOSE ON THE LOTS FOR FAILURE TO PAY SAID
TWO PROMISSORY NOTES". (page 115, Amended Record on Appeal)

THE LOWER COURT ERRED IN NOT HOLDING THAT THE PETITION FOR
EXTRAJUDICIAL FORECLOSURE WAS PREMATURELY FILED AND IS A MERE SCRAP
OF PAPER BECAUSE IT MERELY FORECLOSED THE ORIGINAL AND NOT THE
AMENDED MORTGAGE.
III.
THE LOWER COURT ERRED IN HOLDING THAT "IT IS CLEAR THAT THE AUCTION
SALE WAS NOT PREMATURE". (page 117, Amended Record on Appeal)
IV.

After due consideration of the evidence, the CFI on January 22, 1978 rendered
its Decision, the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, the instant complaint against the
defendant Philippine National Bank is hereby ordered DISMISSED, with costs
against the plaintiff. The Counterclaim against the plaintiff is likewise

THE LOWER COURT ERRED IN HOLDING THAT "SUFFICE IT TO STATE THAT

ACTUALLY THE POWER OF ATTORNEY GIVEN TO THE PNB WAS EMBODIED IN
THE REAL ESTATE MORTGAGE (EXB. 10) WHICH WAS REGISTERED IN THE
REGISTRY OF PROPERTY OF BULACAN AND WAS ANNOTATED ON THE TWO
TORRENS CERTIFICATES INVOLVED" (page 118, Amended Record on Appeal).

V.

defendant-appellee bank failed to comly with this legal requirement. The

Supreme Court has held that:

THE LOWER COURT ERRED IN HOLDING THAT "THE NOTICES REQUIRED UNDER
SEC. 3 OF ACT NO. 3135 WERE ALL COMPLIED WITH" AND "THAT THE DAILY
RECORD . . . IS A NEWSPAPER OF GENERAL CIRCULATION (pages 117-118,
Amended Record on Appeal).

The rule is that statutory provisions governing publication of notice of mortgage

foreclosure sales must be strictly complied with, and that even slight deviations
therefrom will invalidate the notice and render the sale at least voidable
(Jalandoni vs. Ledesma, 64 Phil. l058. G.R. No. 42589, August 1937 and October
VI.
29, 1937). Interpreting Sec. 457 of the Code of Civil Procedure (reproduced in
Sec. 18(c) of Rule 39, Rules of Court and in Sec. 3 of Act No. 3135) in
THE LOWER COURT ERRED IN NOT DECLARING THE CERTIFICATE OF SALE, FINAL Campomanes vs. Bartolome and German & Co. (38 Phil. 808, G.R. No. 1309,
DEED OF SALE AND AFFIDAVIT OF CONSOLIDATION, NULL AND VOID.
October 18, 1918), this Court held that if a sheriff sells without notice prescribed
by the Code of Civil Procedure induced thereto by the judgment creditor, and
VII.
the purchaser at the sale is the judgment creditor, the sale is absolutely void and
no title passes. This is regarded as the settled doctrine in this jurisdiction
THE LOWER COURT ERRED IN NOT ORDERING DEFENDANT TO RECONVEY TO
whatever the rule may be elsewhere (Boria vs. Addison, 14 Phil. 895, G.R. No.
PLAINTIFF THE PARCELS OF LAND COVERED BY T.C.T. NOS. 40712 AND 40713 OF 18010, June 21, 1922).
BULACAN (page 8, Amended Record on Appeal)
. . . It has been held that failure to advertise a mortgage foreclosure sale in
VIII.
compliance with statutory requirements constitutes a jurisdictional defect
invalidating the sale and that a substantial error or omission in a notice of sale
THE LOWER COURT ERRED IN NOT ORDERING DEFENDANT TO PAY TO PLAINTIFF will render the notice insufticient and vitiate the sale (59 C.J.S. 1314).
REASONABLE AMOUNTS OF MORAL AND EXEMPLARY DAMAGES AND
(Tambunting vs. Court of Appeals, L-48278, November 8, 1988; 167 SCRA 16, 23ATTORNEY'S FEES (page 8. Amended Record on Appeal).
24).
IX.

In view of the admission of defendant-appellee in its pleading showing that

there was no compliance of the notice prescribed in Section 3 of Act No. 3135,
THE LOWER COURT ERRED IN DISMISSING THE INSTANT COMPLAINT AGAINST
as amended by Act 4118, with respect to the notice of sale of the foreclosed real
THE PHILIPPINE NATIONAL BANK WITH COSTS AGAINST THE PLAINTIFF. (page
properties in this case, we have no choice but to declare the auction sale as
118, Amended Record on Appeal)." (Brief for Plaintiff-Appellant, pp. 1-4) (pp. 17- absolutely void in view of the fact that the highest bidder and purchaser in said
21, Rollo)
auction sale was defendant-appellee bank. Consequently, the Certificate of Sale,
the Final Deed of Sale and Affidavit of Consolidation are likewise of no legal
With reference to the pertinent issue at hand, respondent court opined:
efffect. (pp. 24-25, Rollo)
The Notices of Sale of appellant's foreclosed properties were published on
March 228, April 11 and April 12, 1969 issues of the newspaper "Daily Record"
(Amended Record on Appeal, p. 108). The date March 28, 1969 falls on a Friday
while the dates April 11 and 12, 1969 are on a Friday and Saturday, respectively.
Section 3 of Act No. 3135 requires that the notice of auction sale shall be
"published once a week for at least three consecutive weeks". Evidently,

Before we focus our attention on the subject of whether or not there was valid
compliance in regard to the required publication, we shall briefly discuss the
other observations of respondent court vis-a-vis herein private respondent's
ascriptions raised with the appellate court when his suit for reconveyance was
dismissed by the court of origin even as private respondent does not impugn the
remarks of respondent court along this line.

Although respondent court acknowledged that there was an ambiguity on the

date of execution of the third promissory note (June 30, 1961) and the date of
maturity thereof (October 28, 1958), it was nonetheless established that the
bank introduced sufficient proof to show that the discrepancy was a mere
clerical error pursuant to Section 7, Rule l30 of the Rules of Court. Anent the
second disputation aired by private respondent, the appellate court observed
that inasmuch as the original as well as the subsequent mortgage were
foreclosed only after private respondent's default, the procedure pursued by
herein petitioner in foreclosing the collaterals was thus appropriate albeit the
petition therefor contained only a copy of the original mortgage.
It was only on the aspect of publication of the notices of sale under Act No.
3135, as amended, and attorney's fees where herein private respondent scored
points which eliminated in the reversal of the trial court's decision. Respondent
court was of the impression that herein petitioner failed to comply with the
legal requirement and the sale effected thereafter must be adjudged invalid
following the ruling of this Court in Tambunting vs. Court of Appeals (167 SCRA
16 [1988]); p. 8, Decision, p. 24, Rollo). In view of petitioner's so-called
indifference to the rules set forth under Act No. 3135, as amended, respondent
court expressly authorized private respondent to recover attorney's fees
because he was compelled to incur expenses to protect his interest.

11, 1969 (the last day of the second week), while the third publication on April
12, 1969 was announced on the first day of the third week. Petitioner thus
concludes that there was no violation from the mere happenstance that the
third publication was made only a day after the second publication since it is
enough that the second publication be made on any day within the second week
and the third publication, on any day within the third week. Moreover, in its bid
to rectify its admission in judicio, petitioner asseverates that said admission
alluded to refers only to the dates of publications, not that there was noncompliance with the publication requirement.
Private respondent, on the other hand, views the legal question from a different
perspective. He believes that the period between each publication must never
be less than seven consecutive days (p. 4, Memorandum; p. 124, Rollo).
We are not convinced by petitioner's submissions because the disquisition in
support thereof rests on the erroneous impression that the day on which the
first publication was made, or on March 28, 1969, should be excluded pursuant
to the third paragraph of Article 17 of the New Civil Code.

It must be conceded that Article 17 is completely silent as to the definition of

what is a "week". In Concepcion vs. Zandueta (36 O.G. 3139 [1938]; Moreno,
Philippine Law Dictionary, Second Ed., 1972, p. 660), this term was interpreted
Immediately upon the submission of a supplemental petition, the spouses
to mean as a period of time consisting of seven consecutive days a definition
Conrado and Marina De Vera filed a petition in intervention claiming that the
which dovetails with the ruling in E.M. Derby and Co. vs. City of Modesto, et al.
two parcels of land involved herein were sold to them on June 4, 1970 by
(38 Pac. Rep. 900 [1984]; 1 Paras, Civil Code of the Philippines Annotated,
petitioner for which transfer certificates of title were issued in their favor (p. 40, Twelfth Ed., 1989, p. 88; 1 Tolentino, Commentaries and Jurisprudence on th
Rollo). On the other hand, private respondent pressed the idea that the alleged Civil Code, 1990, p. 46). Following the interpretation in Derby as to the
intervenors have no more interest in the disputed lots in view of the sale
publication of an ordinance for "at least two weeks" in some newspaper that:
effected by them to Teresa Castillo, Aquilino and Antonio dela Cruz in 1990 (pp.
105-106, Rollo).
. . . here there is no date or event suggesting the exclusion of the first day's
publication from the computation, and the cases above cited take this case out
On March 9, 1992, the Court resolved to give due course to the petition and
of the rule stated in Section 12, Code Civ. Proc. which excludes the first day and
required the parties to submit their respective memoranda (p. 110, Rollo).
includes the last;
Now, in support of the theory on adherence to the conditions spelled in the
preliminary portion of this discourse, the pronouncement of this Court in
Bonnevie vs. Court of Appeals (125 SCRA [1983]; p. 135, Rollo) is sought to be
utilized to press the point that the notice need not be published for three full
weeks. According to petitioner, there is no breach of the proviso since after the
first publication on March 28, 1969, the second notice was published on April

the publication effected on April 11, 1969 cannot be construed as sufficient

advertisement for the second week because the period for the first week should
be reckoned from March 28, 1969 until April 3, 1969 while the second week
should be counted from April 4, 1969 until April 10, 1969. It is clear that the
announcement on April 11, 1969 was both theoretically and physically
accomplished during the first day of the third week and cannot thus be equated

with compliance in law. Indeed, where the word is used simply as a measure of Republic of the Philippines
duration of time and without reference to the calendar, it means a period of
SUPREME COURT
seven consecutive days without regard to the day of the week on which it begins Manila
(1 Tolentino, supra at p. 467 citing Derby).
FIRST DIVISION
Certainly, it would have been absurd to exclude March 28, 1969 as reckoning
point in line with the third paragraph of Article 13 of the New Civil Code, for the G.R. No. L-33693-94
May 31, 1979
purpose of counting the first week of publication as to the last day thereof fall
on April 4, 1969 because this will have the effect of extending the first week by MISAEL P. VERA, as Commissioner of Internal Revenue, and THE FAIR TRADE
another day. This incongruous repercussion could not have been the unwritten BOARD, petitioner,
intention of the lawmakers when Act No. 3135 was enacted. Verily, inclusion of vs.
the first day of publication is in keeping with the computation in Bonnevie vs.
HON. SERAFIN R. CUEVAS, as Judge of the Court of First Instance of Manila,
Court of Appeals (125 SCRA 122 [1983]) where this Court had occasion to
Branch IV, INSTITUTE OF EVAPORATED FILLED MILK MANUFACTURERS OF THE
pronounce, through Justice Guerrero, that the publication of notice on June 30, PHILIPPINES, INC., CONSOLIDATED MILK COMPANY (PHIL.) INC., and MILK
July 7 and July 14, 1968 satisfied the publication requirement under Act No.
INDUSTRIES, INC., respondents.
3135. Respondent court cannot, therefore, be faulted for holding that there was
no compliance with the strict requirements of publication independently of the Solicitor General Felix Q. Antonio and Solicitor Bernardo P. Pardo for petitioners.
so- called admission in judicio.
Sycip, Salazar, Luna, Manalo & Feliciano for private respondents.
WHEREFORE, the petitions for certiorari and intervention are hereby dismissed
and the decision of the Court of Appeals dated April 17, 1991 is hereby affirmed
in toto.
DE CASTRO, J.:
SO ORDERED.
This is a petition for certiorari with preliminary injunction to review the decision
Feliciano, Bidin, Davide and Romero, JJ., concur.
rendered by respondent judge, in Civil Case No. 52276 and in Special Civil Action
No. 52383 both of the Court of First Instance of Manila.
Plaintiffs, in Civil Case No. 52276 private respondents herein, are engaged in the
manufacture, sale and distribution of filled milk products throughout the
Philippines. The products of private respondent, Consolidated Philippines Inc.
are marketed and sold under the brand Darigold whereas those of private
respondent, General Milk Company (Phil.), Inc., under the brand "Liberty;" and
those of private respondent, Milk Industries Inc., under the brand "Dutch Baby."
Private respondent, Institute of Evaporated Filled Milk Manufacturers of the
Philippines, is a corporation organized for the principal purpose of upholding
and maintaining at its highest the standards of local filled milk industry, of which
all the other private respondents are members.

Civil Case No. 52276 is an action for declaratory relief with ex-parte petition for
preliminary injunction wherein plaintiffs pray for an adjudication of their
respective rights and obligations in relation to the enforcement of Section 169
of the Tax Code against their filled milk products.

I.S. No. I . entitled "Antonio R. de Joya vs. Institute of Evaporated Milk

Manufacturers of the Philippines, etc." pending final determination of Civil Case
No. 52276. The facts of this special civil action show that on December 7, 1962,
Antonio R. de Joya and Sufronio Carrasco, both in their individual capacities and
in their capacities as Public Relations Counsel and President of the Philippine
The controversy arose from the order of defendant, Commissioner of Internal
Association of Nutrition, respectively, filed FTB I.S. No. 1 with Fair Trade Board
Revenue now petitioner herein, requiring plaintiffs- private respondents to
for misleading advertisement, mislabeling and/or misbranding. Among other
withdraw from the market all of their filled milk products which do not bear the things, the complaint filed include the charge of omitting to state in their labels
inscription required by Section 169 of the Tax Code within fifteen (15) days from any statement sufficient to Identify their filled milk products as "imitation milk"
receipt of the order with the explicit warning that failure of plaintiffs' private
or as an imitation of genuine cows milk. and omitting to mark the immediate
respondents to comply with said order will result in the institution of the
containers of their filled milk products with the words: "This milk is not suitable
necessary action against any violation of the aforesaid order. Section 169 of the for nourishment for infants less than one year of age or with other equivalent
Tax Code reads as follows:
words as required under Section 169 of the Tax Code. The Board proceeded to
hear the complaint until it received the writ of preliminary injunction issued by
Section 169.
Inscription to be placed on skimmed milk. All condensed
the Court of First Instance on March 19, 1963.
skimmed milk and all milk in whatever form, from which the fatty part has been
removed totally or in part, sold or put on sale in the Philippines shall be clearly
Upon agreement of the parties, Civil Case No. 52276 and Special Civil Action No.
and legibly marked on its immediate containers, and in all the language in which 52383 were heard jointly being intimately related with each other, with
such containers are marked, with the words, "This milk is not suitable for
common facts and issues being also involved therein. On April 16, 1971, the
nourishment for infants less than one year of age," or with other equivalent
respondent court issued its decision, the dispositive part of which reads as
words.
follows:
The Court issued a writ of preliminary injunction dated February 16, 1963
restraining the Commissioner of Internal Revenue from requiring plaintiffs'
private respondents to print on the labels of their rifled milk products the words,
"This milk is not suitable for nourishment for infants less than one year of age or
words of similar import, " as directed by the above quoted provision of Law, and
from taking any action to enforce the above legal provision against the plaintiffs'
private respondents in connection with their rifled milk products, pending the
final determination of the case, Civil Case No. 52276, on the merits.

Wherefore, judgment is hereby rendered:

In Civil Case No. 52276:

(a)
Perpetually restraining the defendant, Commissioner of Internal
Revenue, his agents, or employees from requiring plaintiffs to print on the labels
of their filled milk products the words: "This milk is not suitable for nourishment
for infants less than one year of age" or words with equivalent import and
declaring as nun and void and without authority in law, the order of said
On July 25, 1969, however, the Office of the Solicitor General brought an appeal defendant dated September 28, 1961, Annex A of the complaint, and the Ruling
from the said order by way of certiorari to the Supreme Court. 1 In view thereof, of the Secretary of Finance, dated November 12, 1962, Annex G of the
the respondent court in the meantime suspended disposition of these cases but complaint; and
in view of the absence of any injunction or restraining order from the Supreme
Court, it resumed action on them until their final disposition therein.
In Special Civil Action No. 52383:
Special Civil Action No. 52383, on the other hand, is an action for prohibition
(b)
Restraining perpetually the respondent Fair Trade Board, its agents or
and injunction with a petition for preliminary injunction. Petitioners therein pray employees from continuing in the investigation of the complaints against
that the respondent Fair Trade Board desist from further proceeding with FTB
petitioners docketed as FTB I.S. No. 2, or any charges related to the manufacture

or sale by the petitioners of their filled milk products and declaring as null the
restrict the scope of the general clause "all milk, in whatever form, from which
proceedings so far undertaken by the respondent Board on said complaints. (pp. the fatty pat has been removed totally or in part." In other words, the general
20- 21, Rollo).
clause is restricted by the specific term "skimmed milk" under the familiar rule
of ejusdem generis that general and unlimited terms are restrained and limited
From the above decision of the respondent court, the Commissioner of Internal by the particular terms they follow in the statute.
Revenue and the Fair Trade Board joined together to file the present petition for
certiorari with preliminary injunction, assigning the following errors:
Skimmed milk is different from filled milk. According to the "Definitions,
Standards of Purity, Rules and Regulations of the Board of Food Inspection,"
I.
THE LOWER COURT ERRED IN RULING THAT SEC. TION 169 OF THE TAX skimmed milk is milk in whatever form from which the fatty part has been
CODE HAS BEEN REPEALED BY IMPLICATION.
removed. Filled milk, on the other hand, is any milk, whether or not condensed,
evaporated concentrated, powdered, dried, dessicated, to which has been
II.
THE LOWER COURT ERRED IN RULING THAT SECTION 169 OF THE TAX
added or which has been blended or compounded with any fat or oil other than
CODE HAS LOST ITS TAX PURPOSE, AND THAT COMMISSIONER NECESSARILY
milk fat so that the resulting product is an imitation or semblance of milk cream
LOST HIS AUTHORITY TO ENFORCE THE SAME AND THAT THE PROPER
or skim milk." The difference, therefore, between skimmed milk and filled milk is
AUTHORITY TO PROMOTE THE HEALTH OF INFANTS IS THE FOOD AND DRUG
that in the former, the fatty part has been removed while in the latter, the fatty
ADMINISTRATION, THE SECRETARY OF HEALTH AND THE SECRETARY OF JUSTICE, part is likewise removed but is substituted with refined coconut oil or corn oil or
AS PROVIDED FOR IN RA 3720, NOT THE COMMISSIONER OF INTERNAL
both. It cannot then be readily or safely assumed that Section 169 applies both
REVENUE.
to skimmed milk and filled milk.
III.
THE LOWER COURT ERRED IN RULING THAT THE POWER TO
INVESTIGATE AND TO PROSECUTE VIOLATIONS OF FOOD LAWS IS ENTRUSTED
TO THE FOOD AND DRUG INSPECTION, THE FOOD AND DRUG ADMINISTRATION,
THE SECRETARY OF HEALTH AND THE SECRETARY OF JUSTICE, AND THAT THE
FAIR TRADE BOARD IS WITHOUT JURISDICTION TO INVESTIGATE AND
PROSECUTE ALLEGED MISBRANDING, MISLABELLING AND/OR MISLEADING
ADVERTISEMENT OF FILLED MILK PRODUCTS. (pp, 4-5, Rollo).

The Board of Food Inspection way back in 1961 rendered an opinion that filled
milk does not come within the purview of Section 169, it being a product distinct
from those specified in the said Section since the removed fat portion of the
milk has been replaced with coconut oil and Vitamins A and D as fortifying
substances (p. 58, Rollo). This opinion bolsters the Court's stand as to its
interpretation of the scope of Section 169. Opinions and rulings of officials of
the government called upon to execute or implement administrative laws
command much respect and weight. (Asturias Sugar Central Inc. vs.
The lower court did not err in ruling that Section 169 of the Tax Code has been
Commissioner of Customs, G. R. No. L-19337, September 30, 1969, 29 SCRA 617;
repealed by implication. Section 169 was enacted in 1939, together with Section Tan, et. al. vs. The Municipality of Pagbilao et. al., L-14264, April 30, 1963, 7
141 (which imposed a Specific tax on skimmed milk) and Section 177 (which
SCRA 887; Grapilon vs. Municipal Council of Carigara L-12347, May 30, 1961, 2
penalized the sale of skimmed milk without payment of the specific tax and
SCRA 103).
without the legend required by Section 169). However, Section 141 was
expressly repealed by Section 1 of Republic Act No. 344, and Section 177, by
This Court is, likewise, induced to the belief that filled milk is suitable for
Section 1 of Republic Act No. 463. By the express repeal of Sections 141 and
nourishment for infants of all ages. The Petitioners themselves admitted that:
177, Section 169 became a merely declaratory provision, without a tax purpose, "the filled milk products of the petitioners (now private respondents) are safe,
or a penal sanction.
nutritious, wholesome and suitable for feeding infants of all ages" (p. 44, Rollo)
and that "up to the present, Filipino infants fed since birth with filled milk have
Moreover, it seems apparent that Section 169 of the Tax Code does not apply to not suffered any defects, illness or disease attributable to their having been fed
filled milk. The use of the specific and qualifying terms "skimmed milk" in the
with filled milk." (p. 45, Rollo).
headnote and "condensed skimmed milk" in the text of the cited section, would

There would seem, therefore, to be no dispute that filled milk is suitable for
feeding infants of all ages. Being so, the declaration required by Section 169 of
the Tax Code that filled milk is not suitable for nourishment for infants less than
one year of age would, in effect, constitute a deprivation of property without
due. process of law.

unconnected with any tax purpose. This is the exclusive function of the Food
and Drug Administration of the Department of Health as provided for in
Republic Act No. 3720. In particular, Republic Act No. 3720 provides:
Section 9.
... It shall be the duty of the Board (Food and Drug Inspection),
conformably with the rules and regulations, to hold hearings and conduct
investigations relative to matters touching the Administration of this Act, to
investigate processes of food, drug and cosmetic manufacture and to subject
reports to the Food and Drug Administrator, recommending food and drug
standards for adoption. Said Board shall also perform such additional functions,
properly within the scope of the administration thereof, as maybe assigned to it
by the Food and Drug Administrator. The decisions of the Board shall be
advisory to the Food and Drug Administrator.

Section 169 is being enforced only against respondent manufacturers of filled

milk product and not as against manufacturers, distributors or sellers of
condensed skimmed milk such as SIMILAC, SMA, BREMIL, ENFAMIL, OLAC, in
which, as admitted by the petitioner, the fatty part has been removed and
substituted with vegetable or corn oil. The enforcement of Section 169 against
the private respondents only but not against other persons similarly situated as
the private respondents amounts to an unconstitutional denial of the equal pro
petition of the laws, for the law, equally enforced, would similarly offend against
the Constitution. Yick Wo vs. Hopkins, 118 U.S. 356,30 L. ed. 220).
Section 26.
As stated in the early part of this decision, with the repeal of Sections 141 and
177 of the Tax Code, Section 169 has lost its tax purpose. Since Section 169 is
devoid of any tax purpose, petitioner Commissioner necessarily lost his
authority to enforce the same. This was so held by his predecessor immediately
after Sections 141 and 177 were repealed in General Circular No. V-85 as stated
in paragraph IX of the Partial Stipulation of facts entered into by the parties, to
wit:

xxx

xxx

...
xxx

(c)
Hearing authorized or required by this Act shall be conducted by the
Board of Food and Drug Inspection which shall submit recommendation to the
Food and Drug Administrator.

(d)
When it appears to the Food and Drug Administrator from the reports
of the Food and Drug Laboratory that any article of food or any drug or cosmetic
... As the act of sewing skimmed milk without first paying the specific tax
secured pursuant to Section 28 of this Act is adulterated or branded he shall
thereon is no longer unlawful and the enforcement of the requirement in regard cause notice thereof to be given to the person or persons concerned and such
to the placing of the proper legend on its immediate containers is a subject
person or persons shall be given an opportunity to subject evidence impeaching
which does not come within the jurisdiction of the Bureau of Internal Revenue, the correctness of the finding or charge in question.
the penal provisions of Section 177 of the said Code having been repealed by
Republic Act No. 463. (p. 102, Rollo).
(e)
When a violation of any provisions of this Act comes to the knowledge
of the Food and Drug Administrator of such character that a criminal
Petitioner's contention that he still has jurisdiction to enforce Section 169 by
prosecution ought to be instituted against the offender, he shall certify the facts
virtue of Section 3 of the Tax Code which provides that the Bureau of Internal
to the Secretary of Justice through the Secretary of Health, together with the
Revenue shall also "give effect to and administer the supervisory and police
chemists' report, the findings of the Board of Food and Drug Inspection, or other
power conferred to it by this Code or other laws" is untenable. The Bureau of
documentary evidence on which the charge is based.
Internal Revenue may claim police power only when necessary in the
enforcement of its principal powers and duties consisting of the "collection of all (f)
Nothing in this Act shall be construed as requiring the Food and Drug
national internal revenue taxes, fees and charges, and the enforcement of all
Administrator to certify for prosecution pursuant to subparagraph (e) hereof,
forfeitures, penalties and fines connected therewith." The enforcement of
minor violations of this Act whenever he believes that public interest will be
Section 169 entails the promotion of the health of the nation and is thus
adequately served by a suitable written notice or warning.

The aforequoted provisions of law clearly show that petitioners, Commissioner

of Internal Revenue and the Fair Trade Board, are without jurisdiction to
investigate and to prosecute alleged misbranding, mislabeling and/or misleading
advertisements of filled milk. The jurisdiction on the matters cited is vested
upon the Board of Food and Drug inspection and the Food and Drug
Administrator, with the Secretary of Health and the Secretary of Justice, also
intervening in case criminal prosecution has to be instituted. To hold that the
petitioners have also jurisdiction as would be the result were their instant
petition granted, would only cause overlapping of powers and functions likely to
produce confusion and conflict of official action which is neither practical nor
desirable.
WHEREFORE, the decision appealed from is hereby affirmed en toto. No costs.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-47757-61

January 28, 1980

THE PEOPLE OF THE PHILIPPINES, ABUNDIO R. ELLO, As 4th Assistant of

Provincial Bohol VICENTE DE LA SERNA. JR., as complainant all private
prosecutor, petitioners,
vs.
HON. VICENTE B. ECHAVES, JR., as Judge of the Court of First Instance of Bohol
Branch II, ANO DACULLO, GERONIMO OROYAN, MARIO APARICI, RUPERTO
CAJES and MODESTO S SUELLO, respondents.

SO ORDERED.
Teehankee, (Chairman), Fernandez, Melencio-Herrera, JJ., concur.
AQUINO, J.:p

#Footnotes
1

The legal issue in this case is whether Presidential Decree No. 772, which
penalizes squatting and similar acts, applies to agricultural lands. The decree
(which took effect on August 20, 1975) provides:

G.R. No. L-30793-94.

SECTION 1.
Any person who, with the use of force, intimidation or threat, or
taking advantage of the absence or tolerance of the landowner, succeeds in
occupying or possessing the property of the latter against his will for residential,
commercial or any other purposes, shall be punished by an imprisonment
ranging from six months to one year or a fine of not less than one thousand nor
more than five thousand pesos at the discretion of the court, with subsidiary
imprisonment in case of insolvency. (2nd paragraph is omitted.)
The record shows that on October 25, 1977 Fiscal Abundio R. Ello filed with the
lower court separate informations against sixteen persons charging them with
squatting as penalized by Presidential Decree No. 772. The information against
Mario Aparici which is similar to the other fifteen informations, reads:
That sometime in the year 1974 continuously up to the present at barangay
Magsaysay, municipality of Talibon, province of Bohol, Philippines and within the
jurisdiction of this Honorable Court, the above-named accused, with stealth and

strategy, enter into, occupy and cultivate a portion of a grazing land physically
occupied, possessed and claimed by Atty. Vicente de la Serna, Jr. as successor to
the pasture applicant Celestino de la Serna of Pasture Lease Application No.
8919, accused's entrance into the area has been and is still against the win of
the offended party; did then and there willfully, unlawfully, and feloniously
squat and cultivate a portion of the said grazing land; said cultivating has
rendered a nuisance to and has deprived the pasture applicant from the full use
thereof for which the land applied for has been intended, that is preventing
applicant's cattle from grazing the whole area, thereby causing damage and
prejudice to the said applicant-possessor-occupant, Atty. Vicente de la Serna, Jr.
(sic)

We hold that the lower court correctly ruled that the decree does not apply to
pasture lands because its preamble shows that it was intended to apply to
squatting in urban communities or more particularly to illegal constructions in
squatter areas made by well-to-do individuals. The squating complained of
involves pasture lands in rural areas.
The preamble of the decree is quoted below:

WHEREAS, it came to my knowledge that despite the issuance of Letter of

Instruction No. 19 dated October 2, 1972, directing the Secretaries of National
Defense, Public Work. 9 and communications, Social Welfare and the Director of
Public Works, the PHHC General Manager, the Presidential Assistant on Housing
Five of the informations, wherein Ano Dacullo, Geronimo Oroyan, Mario Aparici, and Rehabilitation Agency, Governors, City and Municipal Mayors, and City and
Ruperto Cajes and Modesto Suello were the accused, were raffled to Judge
District Engineers, "to remove an illegal constructions including buildings on and
Vicente B. Echaves, Jr. of Branch II (Criminal Cases Nos. 1824, 1828, 1832, 1833 along esteros and river banks, those along railroad tracks and those built
and 1839, respectively).
without permits on public and private property." squatting is still a major
problem in urban communities all over the country;
Before the accused could be arraigned, Judge Echaves motu proprio issued an
omnibus order dated December 9, 1977 dismissing the five informations on the WHEREAS, many persons or entities found to have been unlawfully occupying
grounds (1) that it was alleged that the accused entered the land through
public and private lands belong to the affluent class;
"stealth and strategy", whereas under the decree the entry should be effected
"with the use of force, intimidation or threat, or taking advantage of the
WHEREAS, there is a need to further intensify the government's drive against
absence or tolerance of the landowner", and (2) that under the rule of ejusdem this illegal and nefarious practice.
generis the decree does not apply to the cultivation of a grazing land.
It should be stressed that Letter of Instruction No. 19 refers to illegal
Because of that order, the fiscal amended the informations by using in lieu of
constructions on public and private property. It is complemented by Letter of
"stealth and strategy" the expression "with threat, and taking advantage of the Instruction No. 19-A which provides for the relocation of squatters in the
absence of the ranchowner and/or tolerance of the said ranchowner". The fiscal interest of public health, safety and peace and order.
asked that the dismissal order be reconsidered and that the amended
informations be admitted.
On the other hand, it should be noted that squatting on public agricultural lands,
like the grazing lands involved in this case, is punished by Republic Act No. 947
The lower court denied the motion. It insisted that the phrase "and for other
which makes it unlawful for any person, corporation or association to forcibly
purposes" in the decree does not include agricultural purposes because its
enter or occupy public agricultural lands. That law provides:
preamble does not mention the Secretary of Agriculture and makes reference to
the affluent class.
SECTION 1.
It shall be unlawful for any person corporation or association to
enter or occupy, through force, intimidation, threat, strategy or stealth, any
From the order of dismissal, the fiscal appealed to this Court under Republic Act public agriculture land including such public lands as are granted to private
No. 5440. The appeal is devoid of merit.
individuals under the provision of the Public Land Act or any other laws
providing for the of public agriculture lands in the Philippines and are duly
covered by the corresponding applications for the notwithstanding standing the

fact that title thereto still remains in the Government or for any person, natural
or judicial to investigate induce or force another to commit such acts.
Violations of the law are punished by a fine of not exceeding one thousand or
imprisonment for not more than one year, or both such fine and imprisonment
in the discretion of the court, with subsidiary imprisonment in case of
insolvency. (See People vs. Lapasaran 100 Phil. 40.)

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 123169

November 4, 1996

The rule of ejusdem generis (of the same kind or species) invoked by the trial
court does not apply to this case. Here, the intent of the decree is unmistakable.
It is intended to apply only to urban communities, particularly to illegal
constructions. The rule of ejusdem generis is merely a tool of statutory
construction which is resorted to when the legislative intent is uncertain
(Genato Commercial Corp. vs. Court of Tax Appeals, 104 Phil. 615,618; 28 C.J.S.
1049-50).

DANILO E. PARAS, petitioner,

vs.
COMMISSION ON ELECTIONS, respondent.

WHEREFORE, the trial court's order of dismissal is affirmed. No costs.

Petitioner Danilo E. Paras is the incumbent Punong Barangay of Pula,

Cabanatuan City who won during the last regular barangay election in 1994. A
petition for his recall as Punong Barangay was filed by the registered voters of
the barangay. Acting on the petition for recall, public respondent Commission
on Elections (COMELEC) resolved to approve the petition, scheduled the petition
signing on October 14, 1995, and set the recall election on November 13,
1995. 1 At least 29.30% of the registered voters signed the petition, well above
the 25% requirement provided by law. The COMELEC, however, deferred the
recall election in view of petitioner's opposition. On December 6, 1995, the
COMELEC set anew the recall election, this time on December 16, 1995. To
prevent the holding of the recall election, petitioner filed before the Regional
Trial Court of Cabanatuan City a petition for injunction, docketed as SP Civil
Action No. 2254-AF, with the trial court issuing a temporary restraining order.
After conducting a summary hearing, the trial court lifted the restraining order,
dismissed the petition and required petitioner and his counsel to explain why
they should not be cited for contempt for misrepresenting that the barangay
recall election was without COMELEC approval. 2

SO ORDERED.
Barredo, Antonio, Concepcion Jr. and Abad Santos, J., concur.

RESOLUTION
FRANCISCO, J.:

In a resolution dated January 5, 1996, the COMELEC, for the third time, rescheduled the recall election an January 13, 1996; hence, the instant petition for
certiorari with urgent prayer for injunction. On January 12, 1996, the Court
issued a temporary restraining order and required the Office of the Solicitor
General, in behalf of public respondent, to comment on the petition. In view of
the Office of the Solicitor General's manifestation maintaining an opinion

adverse to that of the COMELEC, the latter through its law department filed the
required comment. Petitioner thereafter filed a reply. 3
Petitioner's argument is simple and to the point. Citing Section 74 (b) of
Republic Act No. 7160, otherwise known as the Local Government Code, which
states that "no recall shall take place within one (1) year from the date of the
official's assumption to office or one (1) year immediately preceding a regular
local election", petitioner insists that the scheduled January 13, 1996 recall
election is now barred as the Sangguniang Kabataan (SK) election was set by
Republic Act No. 7808 on the first Monday of May 1996, and every three years
thereafter. In support thereof, petitioner cites Associated Labor Union v.
Letrondo-Montejo, 237 SCRA 621, where the Court considered the SK election
as a regular local election. Petitioner maintains that as the SK election is a
regular local election, hence no recall election can be had for barely four months
separate the SK election from the recall election. We do not agree.

phrase "regular local election", as erroneously insisted by petitioner, then no

recall election can be conducted rendering inutile the recall provision of the
Local Government Code.
In the interpretation of a statute, the Court should start with the assumption
that the legislature intended to enact an effective law, and the legislature is not
presumed to have done a vain thing in the enactment of a statute. 5 An
interpretation should, if possible, be avoided under which a statute or provision
being construed is defeated, or as otherwise expressed, nullified, destroyed,
emasculated, repealed, explained away, or rendered insignificant, meaningless,
inoperative or nugatory. 6

It is likewise a basic precept in statutory construction that a statute should be

interpreted in harmony with the Constitution. 7 Thus, the interpretation of
Section 74 of the Local Government Code, specifically paragraph (b) thereof,
should not be in conflict with the Constitutional mandate of Section 3 of Article
The subject provision of the Local Government Code provides:
X of the Constitution to "enact a local government code which shall provide for a
more responsive and accountable local government structure instituted through
Sec. 74. Limitations on Recall. (a) Any elective local official may be the subject a system of decentralization with effective mechanism of recall, initiative, and
of a recall election only once during his term of office for loss of confidence.
referendum . . . ."
(b)
No recall shall take place within one (1) year from the date of the
official's assumption to office or one (1) year immediately preceding a regular
local election.

Moreover, petitioner's too literal interpretation of the law leads to absurdity

which we cannot countenance. Thus, in a case, the Court made the following
admonition:

[Emphasis added]

We admonish against a too-literal reading of the law as this is apt to constrict

rather than fulfill its purpose and defeat the intention of its authors. That
intention is usually found not in "the letter that killeth but in the spirit that
vivifieth". . . 8

It is a rule in statutory construction that every part of the statute must be

interpreted with reference to the context, i.e., that every part of the statute
must be considered together with the other parts, and kept subservient to the
general intent of the whole enactment. 4 The evident intent of Section 74 is to
subject an elective local official to recall election once during his term of office.
Paragraph (b) construed together with paragraph (a) merely designates the
period when such elective local official may be subject of a recall election, that
is, during the second year of his term of office. Thus, subscribing to petitioner's
interpretation of the phrase regular local election to include the SK election will
unduly circumscribe the novel provision of the Local Government Code on
recall, a mode of removal of public officers by initiation of the people before the
end of his term. And if the SK election which is set by R.A No. 7808 to be held
every three years from May 1996 were to be deemed within the purview of the

The spirit, rather than the letter of a law determines its construction; hence, a
statute, as in this case, must be read according to its spirit and intent.
Finally, recall election is potentially disruptive of the normal working of the local
government unit necessitating additional expenses, hence the prohibition
against the conduct of recall election one year immediately preceding the
regular local election. The proscription is due to the proximity of the next
regular election for the office of the local elective official concerned. The
electorate could choose the official's replacement in the said election who
certainly has a longer tenure in office than a successor elected through a recall

election. It would, therefore, be more in keeping with the intent of the recall
provision of the Code to construe regular local election as one referring to an
election where the office held by the local elective official sought to be recalled
will be contested and be filled by the electorate.

Sec. 2. The Commission on Elections shall exercise the following powers and
functions:

Nevertheless, recall at this time is no longer possible because of the limitation

stated under Section 74 (b) of the Code considering that the next regular
election involving the barangay office concerned is barely seven (7) months
away, the same having been scheduled on May 1997. 9

(2)
Exercise exclusive original jurisdiction over all contests relating to the
elections, returns, and qualifications of all elective regional, provincial, and city
officials, and appellate jurisdiction over all contests involving elective municipal
officials decided by trial courts of general jurisdiction, or involving elective
barangay officials decided by trial courts of limited jurisdiction.

ACCORDINGLY, the petition is hereby dismissed for having become moot and
academic. The temporary restraining order issued by the Court on January 12,
1996, enjoining the recall election should be as it is hereby made permanent.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado, Romero, Bellosillo, Melo, Puno, Vitug, Kapunan,
Mendoza, Hermosisima, Jr., Panganiban and Torres, Jr., JJ., concur.
Separate Opinions
DAVIDE, JR., J., concurring:
I concur with Mr. Justice Ricardo J. Francisco in his ponencia.
However, I wish to add another reason as to why the SK election cannot be
considered a "regular local election" for purposes of recall under Section 74 of
the Local Government Code of 1991.
The term "regular local election" must be confined to the regular election of
elective local officials, as distinguished from the regular election of national
officials. The elective national officials are the President, Vice-President,
Senators and Congressmen. The elective local officials are Provincial Governors,
Vice-Governors of provinces, Mayors and Vice-Mayors of cities and
municipalities, Members of the Sanggunians of provinces, cities and
municipalities, punong barangays and members of the sangguniang barangays,
and the elective regional officials of the Autonomous Region of Muslim
Mindanao. These are the only local elective officials deemed recognized by
Section 2(2) of Article IX-C of the Constitution, which provides:

xxx

xxx

xxx

A regular election, whether national or local, can only refer to an election

participated in by those who possess the right of suffrage, are not otherwise
disqualified by law, and who are registered voters. One of the requirements for
the exercise of suffrage under Section 1, Article V of the Constitution is that the
person must be at least 18 years of age, and one requisite before he can vote is
that he be a registered voter pursuant to the rules on registration prescribed in
the Omnibus Election Code (Section 113-118).
Under the law, the SK includes the youth with ages ranging from 15 to 21 (Sec.
424, Local Government Code of 1991). Accordingly, they include many who are
not qualified to vote in a regular election, viz., those from ages 15 to less than
18. In no manner then may SK elections be considered a regular election
(whether national or local).
Indeed the Sangguniang Kabataan is nothing more than a youth organization,
and although fully recognized in the Local Government Code and vested with
certain powers and functions, its elective officials have not attained the status of
local elective officials. So, in Mercado vs. Board of Election Supervisors (243
SCRA 422 [1995]), this Court ruled that although the SK Chairman is an ex-officio
member of the sangguniang barangay an elective body that fact does not
make him "an elective barangay official," since the law specifically provides who
comprise the elective officials of the sangguniang barangay, viz., the punong
barangay and the seven (7) regular sangguniang barangay members elected at
large by those qualified to exercise the right of suffrage under Article V of the
Constitution, who are likewise registered voters of the barangay. This shows
further that the SK election is not a regular local election for purposes of recall
under Section 74 of the Local Government Code.
Separate Opinions

DAVIDE, JR., J., concurring:

I concur with Mr. Justice Ricardo J. Francisco in his ponencia.
However, I wish to add another reason as to why the SK election cannot be
considered a "regular local election" for purposes of recall under Section 74 of
the Local Government Code of 1991.
The term "regular local election" must be confined to the regular election of
elective local officials, as distinguished from the regular election of national
officials. The elective national officials are the President, Vice-President,
Senators and Congressmen. The elective local officials are Provincial Governors,
Vice-Governors of provinces, Mayors and Vice-Mayors of cities and
municipalities, Members of the Sanggunians of provinces, cities and
municipalities, punong barangays and members of the sangguniang barangays,
and the elective regional officials of the Autonomous Region of Muslim
Mindanao. These are the only local elective officials deemed recognized by
Section 2(2) of Article IX-C of the Constitution, which provides:
Sec. 2. The Commission on Elections shall exercise the following powers and
functions:
xxx

xxx

xxx

(2)
Exercise exclusive original jurisdiction over all contests relating to the
elections, returns, and qualifications of all elective regional, provincial, and city
officials, and appellate jurisdiction over all contests involving elective municipal
officials decided by trial courts of general jurisdiction, or involving elective
barangay officials decided by trial courts of limited jurisdiction.
A regular election, whether national or local, can only refer to an election
participated in by those who possess the right of suffrage, are not otherwise
disqualified by law, and who are registered voters. One of the requirements for
the exercise of suffrage under Section 1, Article V of the Constitution is that the
person must be at least 18 years of age, and one requisite before he can vote is
that he be a registered voter pursuant to the rules on registration prescribed in
the Omnibus Election Code (Section 113-118).

Under the law, the SK includes the youth with ages ranging from 15 to 21 (Sec.
424, Local Government Code of 1991). Accordingly, they include many who are
not qualified to vote in a regular election, viz., those from ages 15 to less than
18. In no manner then may SK elections be considered a regular election
(whether national or local).
Indeed the Sangguniang Kabataan is nothing more than a youth organization,
and although fully recognized in the Local Government Code and vested with
certain powers and functions, its elective officials have not attained the status of
local elective officials. So, in Mercado vs. Board of Election Supervisors (243
SCRA 422 [1995]), this Court ruled that although the SK Chairman is an ex-officio
member of the sangguniang barangay an elective body that fact does not
make him "an elective barangay official," since the law specifically provides who
comprise the elective officials of the sangguniang barangay, viz., the punong
barangay and the seven (7) regular sangguniang barangay members elected at
large by those qualified to exercise the right of suffrage under Article V of the
Constitution, who are likewise registered voters of the barangay. This shows
further that the SK election is not a regular local election for purposes of recall
under Section 74 of the Local Government Code.
Narvasa, C.J., Padilla, Regalado, Bellosillo, Vitug and Mendoza, JJ., concur.
Footnotes
1
COMELEC Resolution No. 95-3345, September 5, 1995.
2
RTC, Cabanatuan City, Order dated December 20, 1995; Rollo, p. 28.
3
Rollo, pp. 64-66.
4
Aisporna v. Court of Appeals, 113 SCRA 464, 467.
5
Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617,
627.
6
Id. at p. 628.
7
PLDT v. Collector of Internal Revenue, 90 Phil. 674.
8
People v. Salas, 143 SCRA 163, 167.
9
Petition, p. 3; Rollo, p. 5; See: Evardorne v. COMELEC, 204 SCRA 464.

Republic of the Philippines

SUPREME COURT
Manila

REYES,
LEONARDO-DE CASTRO, and
BRION, JJ.

EN BANC
SOCIAL JUSTICE SOCIETY (SJS), G.R. No. 157870
Petitioner,
- versus -

COMMISSION ON ELECTIONS, Promulgated:

Respondent.
November 3, 2008
x-----------------------------------------------------------------------------------------x
DECISION

DANGEROUS DRUGS BOARD and

PHILIPPINE DRUG ENFORCEMENT
AGENCY (PDEA),
Respondents.
x-----------------------------------------------x
ATTY. MANUEL J. LASERNA, JR., G.R. No. 158633
Petitioner,

VELASCO, JR., J.:

In these kindred petitions, the constitutionality of Section 36 of Republic Act No.
(RA) 9165, otherwise known as the Comprehensive Dangerous Drugs Act of
2002, insofar as it requires mandatory drug testing of candidates for public
office, students of secondary and tertiary schools, officers and employees of
public and private offices, and persons charged before the prosecutors office
with certain offenses, among other personalities, is put in issue.

- versus -

As far as pertinent, the challenged section reads as follows:

SEC. 36. Authorized Drug Testing.Authorized drug testing shall be done by any
government forensic laboratories or by any of the drug testing laboratories
accredited and monitored by the DOH to safeguard the quality of the test
results. x x x The drug testing shall employ, among others, two (2) testing
methods, the screening test which will determine the positive result as well as
the type of drug used and the confirmatory test which will confirm a positive
screening test. x x x The following shall be subjected to undergo drug testing:

DANGEROUS DRUGS BOARD and

PHILIPPINE DRUG ENFORCEMENT
AGENCY,
Respondents.
x-----------------------------------------------x
AQUILINO Q. PIMENTEL, JR., G.R. No. 161658
Petitioner,
Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
CARPIO,
AUSTRIA-MARTINEZ,
- versus - CORONA,
CARPIO MORALES,
AZCUNA,
TINGA,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA,

xxxx
(c) Students of secondary and tertiary schools.Students of secondary and
tertiary schools shall, pursuant to the related rules and regulations as contained
in the schools student handbook and with notice to the parents, undergo a
random drug testing x x x;
(d) Officers and employees of public and private offices.Officers and employees
of public and private offices, whether domestic or overseas, shall be subjected
to undergo a random drug test as contained in the companys work rules and
regulations, x x x for purposes of reducing the risk in the workplace. Any officer
or employee found positive for use of dangerous drugs shall be dealt with
administratively which shall be a ground for suspension or termination, subject

to the provisions of Article 282 of the Labor Code and pertinent provisions of
the Civil Service Law;
xxxx
(f) All persons charged before the prosecutors office with a criminal offense
having an imposable penalty of imprisonment of not less than six (6) years and
one (1) day shall undergo a mandatory drug test;

(g) All candidates for public office whether appointed or elected both in the
national or local government shall undergo a mandatory drug test.
In addition to the above stated penalties in this Section, those found to be
positive for dangerous drugs use shall be subject to the provisions of Section 15
of this Act.

WHEREAS, by requiring candidates to undergo mandatory drug test, the public

will know the quality of candidates they are electing and they will be assured
that only those who can serve with utmost responsibility, integrity, loyalty, and
efficiency would be elected x x x.
NOW THEREFORE, The [COMELEC], pursuant to the authority vested in it under
the Constitution, Batas Pambansa Blg. 881 (Omnibus Election Code), [RA] 9165
and other election laws, RESOLVED to promulgate, as it hereby promulgates, the
following rules and regulations on the conduct of mandatory drug testing to
candidates for public office[:]
SECTION 1. Coverage.All candidates for public office, both national and local, in
the May 10, 2004 Synchronized National and Local Elections shall undergo
mandatory drug test in government forensic laboratories or any drug testing
laboratories monitored and accredited by the Department of Health.
SEC. 3. x x x

G.R. No. 161658 (Aquilino Q. Pimentel, Jr. v. Commission on Elections)

On December 23, 2003, the Commission on Elections (COMELEC) issued
Resolution No. 6486, prescribing the rules and regulations on the mandatory
drug testing of candidates for public office in connection with the May 10, 2004
synchronized national and local elections. The pertinent portions of the said
resolution read as follows:

WHEREAS, Section 36 (g) of Republic Act No. 9165 provides:

On March 25, 2004, in addition to the drug certificates filed with their respective
offices, the Comelec Offices and employees concerned shall submit to the Law
Department two (2) separate lists of candidates. The first list shall consist of
those candidates who complied with the mandatory drug test while the second
list shall consist of those candidates who failed to comply x x x.
SEC. 4. Preparation and publication of names of candidates.Before the start of
the campaign period, the [COMELEC] shall prepare two separate lists of
candidates. The first list shall consist of those candidates who complied with the
mandatory drug test while the second list shall consist of those candidates who
failed to comply with said drug test. x x x

SEC. 36. Authorized Drug Testing.x x x

xxxx
(g) All candidates for public office x x x both in the national or local government
shall undergo a mandatory drug test.
WHEREAS, Section 1, Article XI of the 1987 Constitution provides that public
officers and employees must at all times be accountable to the people, serve
them with utmost responsibility, integrity, loyalty and efficiency;

SEC. 5. Effect of failure to undergo mandatory drug test and file drug test
certificate.No person elected to any public office shall enter upon the duties of
his office until he has undergone mandatory drug test and filed with the offices
enumerated under Section 2 hereof the drug test certificate herein required.
(Emphasis supplied.)

Petitioner Aquilino Q. Pimentel, Jr., a senator of the Republic and a candidate for
re-election in the May 10, 2004 elections,[1] filed a Petition for Certiorari and
Prohibition under Rule 65. In it, he seeks (1) to nullify Sec. 36(g) of RA 9165 and

COMELEC Resolution No. 6486 dated December 23, 2003 for being
unconstitutional in that they impose a qualification for candidates for senators
in addition to those already provided for in the 1987 Constitution; and (2) to
enjoin the COMELEC from implementing Resolution No. 6486.
Pimentel invokes as legal basis for his petition Sec. 3, Article VI of the
Constitution, which states:

SECTION 3. No person shall be a Senator unless he is a natural-born citizen of

the Philippines, and, on the day of the election, is at least thirty-five years of
age, able to read and write, a registered voter, and a resident of the Philippines
for not less than two years immediately preceding the day of the election.

According to Pimentel, the Constitution only prescribes a maximum of five (5)

qualifications for one to be a candidate for, elected to, and be a member of the
Senate. He says that both the Congress and COMELEC, by requiring, via RA 9165
and Resolution No. 6486, a senatorial aspirant, among other candidates, to
undergo a mandatory drug test, create an additional qualification that all
candidates for senator must first be certified as drug free. He adds that there is
no provision in the Constitution authorizing the Congress or COMELEC to
expand the qualification requirements of candidates for senator.
G.R. No. 157870 (Social Justice Society v. Dangerous
Drugs Board and Philippine Drug Enforcement Agency)

In its Petition for Prohibition under Rule 65, petitioner Social Justice Society
(SJS), a registered political party, seeks to prohibit the Dangerous Drugs Board
(DDB) and the Philippine Drug Enforcement Agency (PDEA) from enforcing
paragraphs (c), (d), (f), and (g) of Sec. 36 of RA 9165 on the ground that they are
constitutionally infirm. For one, the provisions constitute undue delegation of
legislative power when they give unbridled discretion to schools and employers
to determine the manner of drug testing. For another, the provisions trench in
the equal protection clause inasmuch as they can be used to harass a student or
an employee deemed undesirable. And for a third, a persons constitutional right
against unreasonable searches is also breached by said provisions.

G.R. No. 158633 (Atty. Manuel J. Laserna, Jr. v. Dangerous

Drugs Board and Philippine Drug Enforcement Agency)

Petitioner Atty. Manuel J. Laserna, Jr., as citizen and taxpayer, also seeks in his
Petition for Certiorari and Prohibition under Rule 65 that Sec. 36(c), (d), (f), and
(g) of RA 9165 be struck down as unconstitutional for infringing on the
constitutional right to privacy, the right against unreasonable search and
seizure, and the right against self-incrimination, and for being contrary to the
due process and equal protection guarantees.

The Issue on Locus Standi

First off, we shall address the justiciability of the cases at bench and the matter
of the standing of petitioners SJS and Laserna to sue. As respondents DDB and
PDEA assert, SJS and Laserna failed to allege any incident amounting to a
violation of the constitutional rights mentioned in their separate petitions.[2]
It is basic that the power of judicial review can only be exercised in connection
with a bona fide controversy which involves the statute sought to be
reviewed.[3] But even with the presence of an actual case or controversy, the
Court may refuse to exercise judicial review unless the constitutional question is
brought before it by a party having the requisite standing to challenge it.[4] To
have standing, one must establish that he or she has suffered some actual or
threatened injury as a result of the allegedly illegal conduct of the government;
the injury is fairly traceable to the challenged action; and the injury is likely to be
redressed by a favorable action.[5]
The rule on standing, however, is a matter of procedure; hence, it can be
relaxed for non-traditional plaintiffs, like ordinary citizens, taxpayers, and
legislators when the public interest so requires, such as when the matter is of
transcendental importance, of overarching significance to society, or of
paramount public interest.[6] There is no doubt that Pimentel, as senator of the
Philippines and candidate for the May 10, 2004 elections, possesses the
requisite standing since he has substantial interests in the subject matter of the
petition, among other preliminary considerations. Regarding SJS and Laserna,
this Court is wont to relax the rule on locus standi owing primarily to the
transcendental importance and the paramount public interest involved in the
enforcement of Sec. 36 of RA 9165.

The Consolidated Issues

The principal issues before us are as follows:

Congress inherent legislative powers, broad as they may be, are subject to
certain limitations. As early as 1927, in Government v. Springer, the Court has
defined, in the abstract, the limits on legislative power in the following wise:

(1) Do Sec. 36(g) of RA 9165 and COMELEC Resolution No. 6486 impose an
additional qualification for candidates for senator? Corollarily, can Congress
enact a law prescribing qualifications for candidates for senator in addition to
those laid down by the Constitution? and
(2) Are paragraphs (c), (d), (f), and (g) of Sec. 36, RA 9165 unconstitutional?
Specifically, do these paragraphs violate the right to privacy, the right against
unreasonable searches and seizure, and the equal protection clause? Or do they
constitute undue delegation of legislative power?

Someone has said that the powers of the legislative department of the
Government, like the boundaries of the ocean, are unlimited. In constitutional
governments, however, as well as governments acting under delegated
authority, the powers of each of the departments x x x are limited and confined
within the four walls of the constitution or the charter, and each department
can only exercise such powers as are necessarily implied from the given powers.
The Constitution is the shore of legislative authority against which the waves of
legislative enactment may dash, but over which it cannot leap.[10]

Pimentel Petition
(Constitutionality of Sec. 36[g] of RA 9165 and
COMELEC Resolution No. 6486)

Thus, legislative power remains limited in the sense that it is subject to

substantive and constitutional limitations which circumscribe both the exercise
of the power itself and the allowable subjects of legislation.[11] The substantive
constitutional limitations are chiefly found in the Bill of Rights[12] and other
provisions, such as Sec. 3, Art. VI of the Constitution prescribing the
qualifications of candidates for senators.

In essence, Pimentel claims that Sec. 36(g) of RA 9165 and COMELEC Resolution
No. 6486 illegally impose an additional qualification on candidates for senator.
He points out that, subject to the provisions on nuisance candidates, a candidate
for senator needs only to meet the qualifications laid down in Sec. 3, Art. VI of
the Constitution, to wit: (1) citizenship, (2) voter registration, (3) literacy, (4)
age, and (5) residency. Beyond these stated qualification requirements,
candidates for senator need not possess any other qualification to run for
senator and be voted upon and elected as member of the Senate. The Congress
cannot validly amend or otherwise modify these qualification standards, as it
cannot disregard, evade, or weaken the force of a constitutional mandate,[7] or
alter or enlarge the Constitution.

In the same vein, the COMELEC cannot, in the guise of enforcing and
administering election laws or promulgating rules and regulations to implement
Sec. 36(g), validly impose qualifications on candidates for senator in addition to
what the Constitution prescribes. If Congress cannot require a candidate for
senator to meet such additional qualification, the COMELEC, to be sure, is also
without such power. The right of a citizen in the democratic process of election
should not be defeated by unwarranted impositions of requirement not
otherwise specified in the Constitution.[13]
Sec. 36(g) of RA 9165, as sought to be implemented by the assailed COMELEC
Pimentels contention is well-taken. Accordingly, Sec. 36(g) of RA 9165 should be, resolution, effectively enlarges the qualification requirements enumerated in
as it is hereby declared as, unconstitutional. It is basic that if a law or an
the Sec. 3, Art. VI of the Constitution. As couched, said Sec. 36(g) unmistakably
administrative rule violates any norm of the Constitution, that issuance is null
requires a candidate for senator to be certified illegal-drug clean, obviously as a
and void and has no effect. The Constitution is the basic law to which all laws
pre-condition to the validity of a certificate of candidacy for senator or, with like
must conform; no act shall be valid if it conflicts with the Constitution.[8] In the effect, a condition sine qua non to be voted upon and, if proper, be proclaimed
discharge of their defined functions, the three departments of government have as senator-elect. The COMELEC resolution completes the chain with the proviso
no choice but to yield obedience to the commands of the Constitution.
that [n]o person elected to any public office shall enter upon the duties of his
Whatever limits it imposes must be observed.[9]
office until he has undergone mandatory drug test. Viewed, therefore, in its
proper context, Sec. 36(g) of RA 9165 and the implementing COMELEC
Resolution add another qualification layer to what the 1987 Constitution, at the
minimum, requires for membership in the Senate. Whether or not the drug-free

bar set up under the challenged provision is to be hurdled before or after

election is really of no moment, as getting elected would be of little value if one
cannot assume office for non-compliance with the drug-testing requirement.
It may of course be argued, in defense of the validity of Sec. 36(g) of RA 9165,
that the provision does not expressly state that non-compliance with the drug
test imposition is a disqualifying factor or would work to nullify a certificate of
candidacy. This argument may be accorded plausibility if the drug test
requirement is optional. But the particular section of the law, without exception,
made drug-testing on those covered mandatory, necessarily suggesting that the
obstinate ones shall have to suffer the adverse consequences for not adhering
to the statutory command. And since the provision deals with candidates for
public office, it stands to reason that the adverse consequence adverted to can
only refer to and revolve around the election and the assumption of public
office of the candidates. Any other construal would reduce the mandatory
nature of Sec. 36(g) of RA 9165 into a pure jargon without meaning and effect
whatsoever.
While it is anti-climactic to state it at this juncture, COMELEC Resolution No.
6486 is no longer enforceable, for by its terms, it was intended to cover only the
May 10, 2004 synchronized elections and the candidates running in that
electoral event. Nonetheless, to obviate repetition, the Court deems it
appropriate to review and rule, as it hereby rules, on its validity as an
implementing issuance.

implementation and enforcement of anti-drug abuse policies, programs and

projects.[14] The primary legislative intent is not criminal prosecution, as those
found positive for illegal drug use as a result of this random testing are not
necessarily treated as criminals. They may even be exempt from criminal liability
should the illegal drug user consent to undergo rehabilitation. Secs. 54 and 55 of
RA 9165 are clear on this point:

Sec. 54. Voluntary Submission of a Drug Dependent to Confinement, Treatment

and Rehabilitation.A drug dependent or any person who violates Section 15 of
this Act may, by himself/herself or through his/her parent, [close relatives] x x x
apply to the Board x x x for treatment and rehabilitation of the drug
dependency. Upon such application, the Board shall bring forth the matter to
the Court which shall order that the applicant be examined for drug
dependency. If the examination x x x results in the certification that the
applicant is a drug dependent, he/she shall be ordered by the Court to undergo
treatment and rehabilitation in a Center designated by the Board x x x.
xxxx
Sec. 55. Exemption from the Criminal Liability Under the Voluntary Submission
Program.A drug dependent under the voluntary submission program, who is
finally discharged from confinement, shall be exempt from the criminal liability
under Section 15 of this Act subject to the following conditions:

It ought to be made abundantly clear, however, that the unconstitutionality of

Sec. 36(g) of RA 9165 is rooted on its having infringed the constitutional
xxxx
provision defining the qualification or eligibility requirements for one aspiring to
run for and serve as senator.
School children, the US Supreme Court noted, are most vulnerable to the
SJS Petition
physical, psychological, and addictive effects of drugs. Maturing nervous
(Constitutionality of Sec. 36[c], [d], [f], and [g] of RA 9165)
systems of the young are more critically impaired by intoxicants and are more
inclined to drug dependency. Their recovery is also at a depressingly low
The drug test prescribed under Sec. 36(c), (d), and (f) of RA 9165 for secondary rate.[15]
and tertiary level students and public and private employees, while mandatory,
is a random and suspicionless arrangement. The objective is to stamp out illegal The right to privacy has been accorded recognition in this jurisdiction as a facet
drug and safeguard in the process the well being of [the] citizenry, particularly
of the right protected by the guarantee against unreasonable search and
the youth, from the harmful effects of dangerous drugs. This statutory purpose, seizure[16] under Sec. 2, Art. III[17] of the Constitution. But while the right to
per the policy-declaration portion of the law, can be achieved via the pursuit by privacy has long come into its own, this case appears to be the first time that the
the state of an intensive and unrelenting campaign against the trafficking and
validity of a state-decreed search or intrusion through the medium of
use of dangerous drugs x x x through an integrated system of planning,
mandatory random drug testing among students and employees is, in this

jurisdiction, made the focal point. Thus, the issue tendered in these proceedings examinations and undress before their peers in locker rooms, non-athletes are
is veritably one of first impression.
entitled to more privacy.
US jurisprudence is, however, a rich source of persuasive jurisprudence. With
respect to random drug testing among school children, we turn to the teachings
of Vernonia School District 47J v. Acton (Vernonia) and Board of Education of
Independent School District No. 92 of Pottawatomie County, et al. v. Earls, et al.
(Board of Education),[18] both fairly pertinent US Supreme Court-decided cases
involving the constitutionality of governmental search.
In Vernonia, school administrators in Vernonia, Oregon wanted to address the
drug menace in their respective institutions following the discovery of frequent
drug use by school athletes. After consultation with the parents, they required
random urinalysis drug testing for the schools athletes. James Acton, a high
school student, was denied participation in the football program after he
refused to undertake the urinalysis drug testing. Acton forthwith sued, claiming
that the schools drug testing policy violated, inter alia, the Fourth
Amendment[19] of the US Constitution.

The US Supreme Court, citing Vernonia, upheld the constitutionality of drug

testing even among non-athletes on the basis of the schools custodial
responsibility and authority. In so ruling, said court made no distinction between
a non-athlete and an athlete. It ratiocinated that schools and teachers act in
place of the parents with a similar interest and duty of safeguarding the health
of the students. And in holding that the school could implement its random
drug-testing policy, the Court hinted that such a test was a kind of search in
which even a reasonable parent might need to engage.

In sum, what can reasonably be deduced from the above two cases and applied
to this jurisdiction are: (1) schools and their administrators stand in loco parentis
with respect to their students; (2) minor students have contextually fewer rights
than an adult, and are subject to the custody and supervision of their parents,
guardians, and schools; (3) schools, acting in loco parentis, have a duty to
safeguard the health and well-being of their students and may adopt such
measures as may reasonably be necessary to discharge such duty; and (4)
The US Supreme Court, in fashioning a solution to the issues raised in Vernonia, schools have the right to impose conditions on applicants for admission that are
considered the following: (1) schools stand in loco parentis over their students; fair, just, and non-discriminatory.
(2) school children, while not shedding their constitutional rights at the school
Guided by Vernonia and Board of Education, the Court is of the view and so
gate, have less privacy rights; (3) athletes have less privacy rights than nonholds that the provisions of RA 9165 requiring mandatory, random, and
athletes since the former observe communal undress before and after sports
suspicionless drug testing of students are constitutional. Indeed, it is within the
events; (4) by joining the sports activity, the athletes voluntarily subjected
prerogative of educational institutions to require, as a condition for admission,
themselves to a higher degree of school supervision and regulation; (5) requiring compliance with reasonable school rules and regulations and policies. To be
urine samples does not invade a students privacy since a student need not
sure, the right to enroll is not absolute; it is subject to fair, reasonable, and
undress for this kind of drug testing; and (6) there is need for the drug testing
equitable requirements.
because of the dangerous effects of illegal drugs on the young. The US Supreme
Court held that the policy constituted reasonable search under the Fourth[20]
The Court can take judicial notice of the proliferation of prohibited drugs in the
and 14th Amendments and declared the random drug-testing policy
country that threatens the well-being of the people,[21] particularly the youth
constitutional.
and school children who usually end up as victims. Accordingly, and until a more
effective method is conceptualized and put in motion, a random drug testing of
In Board of Education, the Board of Education of a school in Tecumseh,
students in secondary and tertiary schools is not only acceptable but may even
Oklahoma required a drug test for high school students desiring to join extrabe necessary if the safety and interest of the student population, doubtless a
curricular activities. Lindsay Earls, a member of the show choir, marching band, legitimate concern of the government, are to be promoted and protected. To
and academic team declined to undergo a drug test and averred that the drug- borrow from Vernonia, [d]eterring drug use by our Nations schoolchildren is as
testing policy made to apply to non-athletes violated the Fourth and 14th
important as enhancing efficient enforcement of the Nations laws against the
Amendments. As Earls argued, unlike athletes who routinely undergo physical
importation of drugs; the necessity for the State to act is magnified by the fact
that the effects of a drug-infested school are visited not just upon the users, but

upon the entire student body and faculty.[22] Needless to stress, the random
testing scheme provided under the law argues against the idea that the testing
aims to incriminate unsuspecting individual students.

mandated intrusion on the individuals privacy interest against the promotion of

some compelling state interest.[31] In the criminal context, reasonableness
requires showing of probable cause to be personally determined by a judge.
Given that the drug-testing policy for employeesand students for that
Just as in the case of secondary and tertiary level students, the mandatory but
matterunder RA 9165 is in the nature of administrative search needing what was
random drug test prescribed by Sec. 36 of RA 9165 for officers and employees of referred to in Vernonia as swift and informal disciplinary procedures, the
public and private offices is justifiable, albeit not exactly for the same reason.
probable-cause standard is not required or even practicable. Be that as it may,
The Court notes in this regard that petitioner SJS, other than saying that
the review should focus on the reasonableness of the challenged administrative
subjecting almost everybody to drug testing, without probable cause, is
search in question.
unreasonable, an unwarranted intrusion of the individual right to privacy,[23]
has failed to show how the mandatory, random, and suspicionless drug testing
The first factor to consider in the matter of reasonableness is the nature of the
under Sec. 36(c) and (d) of RA 9165 violates the right to privacy and constitutes privacy interest upon which the drug testing, which effects a search within the
unlawful and/or unconsented search under Art. III, Secs. 1 and 2 of the
meaning of Sec. 2, Art. III of the Constitution, intrudes. In this case, the office or
Constitution.[24] Petitioner Lasernas lament is just as simplistic, sweeping, and workplace serves as the backdrop for the analysis of the privacy expectation of
gratuitous and does not merit serious consideration. Consider what he wrote
the employees and the reasonableness of drug testing requirement. The
without elaboration:
employees privacy interest in an office is to a large extent circumscribed by the
companys work policies, the collective bargaining agreement, if any, entered
The US Supreme Court and US Circuit Courts of Appeals have made various
into by management and the bargaining unit, and the inherent right of the
rulings on the constitutionality of mandatory drug tests in the school and the
employer to maintain discipline and efficiency in the workplace. Their privacy
workplaces. The US courts have been consistent in their rulings that the
expectation in a regulated office environment is, in fine, reduced; and a degree
mandatory drug tests violate a citizens constitutional right to privacy and right
of impingement upon such privacy has been upheld.
against unreasonable search and seizure. They are quoted extensively
hereinbelow.[25]
Just as defining as the first factor is the character of the intrusion authorized by
the challenged law. Reduced to a question form, is the scope of the search or
The essence of privacy is the right to be left alone.[26] In context, the right to
intrusion clearly set forth, or, as formulated in Ople v. Torres, is the enabling law
privacy means the right to be free from unwarranted exploitation of ones
authorizing a search narrowly drawn or narrowly focused?[32]
person or from intrusion into ones private activities in such a way as to cause
humiliation to a persons ordinary sensibilities. [27] And while there has been
The poser should be answered in the affirmative. For one, Sec. 36 of RA 9165
general agreement as to the basic function of the guarantee against
and its implementing rules and regulations (IRR), as couched, contain provisions
unwarranted search, translation of the abstract prohibition against
specifically directed towards preventing a situation that would unduly
unreasonable searches and seizures into workable broad guidelines for the
embarrass the employees or place them under a humiliating experience. While
decision of particular cases is a difficult task, to borrow from C. Camara v.
every officer and employee in a private establishment is under the law deemed
Municipal Court.[28] Authorities are agreed though that the right to privacy
forewarned that he or she may be a possible subject of a drug test, nobody is
yields to certain paramount rights of the public and defers to the states exercise really singled out in advance for drug testing. The goal is to discourage drug use
of police power.[29]
by not telling in advance anyone when and who is to be tested. And as may be
observed, Sec. 36(d) of RA 9165 itself prescribes what, in Ople, is a narrowing
As the warrantless clause of Sec. 2, Art III of the Constitution is couched and as
ingredient by providing that the employees concerned shall be subjected to
has been held, reasonableness is the touchstone of the validity of a government random drug test as contained in the companys work rules and regulations x x x
search or intrusion.[30] And whether a search at issue hews to the
for purposes of reducing the risk in the work place.
reasonableness standard is judged by the balancing of the government-

For another, the random drug testing shall be undertaken under conditions
calculated to protect as much as possible the employees privacy and dignity. As
to the mechanics of the test, the law specifies that the procedure shall employ
two testing methods, i.e., the screening test and the confirmatory test,
doubtless to ensure as much as possible the trustworthiness of the results. But
the more important consideration lies in the fact that the test shall be
conducted by trained professionals in access-controlled laboratories monitored
by the Department of Health (DOH) to safeguard against results tampering and
to ensure an accurate chain of custody.[33] In addition, the IRR issued by the
DOH provides that access to the drug results shall be on the need to know
basis;[34] that the drug test result and the records shall be [kept] confidential
subject to the usual accepted practices to protect the confidentiality of the test
results.[35] Notably, RA 9165 does not oblige the employer concerned to report
to the prosecuting agencies any information or evidence relating to the violation
of the Comprehensive Dangerous Drugs Act received as a result of the operation
of the drug testing. All told, therefore, the intrusion into the employees privacy,
under RA 9165, is accompanied by proper safeguards, particularly against
embarrassing leakages of test results, and is relatively minimal.

Taking into account the foregoing factors, i.e., the reduced expectation of
privacy on the part of the employees, the compelling state concern likely to be
met by the search, and the well-defined limits set forth in the law to properly
guide authorities in the conduct of the random testing, we hold that the
challenged drug test requirement is, under the limited context of the case,
reasonable and, ergo, constitutional.
Like their counterparts in the private sector, government officials and
employees also labor under reasonable supervision and restrictions imposed by
the Civil Service law and other laws on public officers, all enacted to promote a
high standard of ethics in the public service.[37] And if RA 9165 passes the norm
of reasonableness for private employees, the more reason that it should pass
the test for civil servants, who, by constitutional command, are required to be
accountable at all times to the people and to serve them with utmost
responsibility and efficiency.[38]

Petitioner SJS next posture that Sec. 36 of RA 9165 is objectionable on the

ground of undue delegation of power hardly commends itself for concurrence.
Contrary to its position, the provision in question is not so extensively drawn as
to give unbridled options to schools and employers to determine the manner of
To reiterate, RA 9165 was enacted as a measure to stamp out illegal drug in the drug testing. Sec. 36 expressly provides how drug testing for students of
country and thus protect the well-being of the citizens, especially the youth,
secondary and tertiary schools and officers/employees of public/private offices
from the deleterious effects of dangerous drugs. The law intends to achieve this should be conducted. It enumerates the persons who shall undergo drug
through the medium, among others, of promoting and resolutely pursuing a
testing. In the case of students, the testing shall be in accordance with the
national drug abuse policy in the workplace via a mandatory random drug
school rules as contained in the student handbook and with notice to parents.
test.[36] To the Court, the need for drug testing to at least minimize illegal drug On the part of officers/employees, the testing shall take into account the
use is substantial enough to override the individuals privacy interest under the
companys work rules. In either case, the random procedure shall be observed,
premises. The Court can consider that the illegal drug menace cuts across
meaning that the persons to be subjected to drug test shall be picked by chance
gender, age group, and social- economic lines. And it may not be amiss to state or in an unplanned way. And in all cases, safeguards against misusing and
that the sale, manufacture, or trafficking of illegal drugs, with their ready
compromising the confidentiality of the test results are established.
market, would be an investors dream were it not for the illegal and immoral
components of any of such activities. The drug problem has hardly abated since Lest it be overlooked, Sec. 94 of RA 9165 charges the DDB to issue, in
the martial law public execution of a notorious drug trafficker. The state can no consultation with the DOH, Department of the Interior and Local Government,
longer assume a laid back stance with respect to this modern-day scourge. Drug Department of Education, and Department of Labor and Employment, among
enforcement agencies perceive a mandatory random drug test to be an
other agencies, the IRR necessary to enforce the law. In net effect then, the
effective way of preventing and deterring drug use among employees in private participation of schools and offices in the drug testing scheme shall always be
offices, the threat of detection by random testing being higher than other
subject to the IRR of RA 9165. It is, therefore, incorrect to say that schools and
modes. The Court holds that the chosen method is a reasonable and enough
employers have unchecked discretion to determine how often, under what
means to lick the problem.
conditions, and where the drug tests shall be conducted.

The validity of delegating legislative power is now a quiet area in the

constitutional landscape.[39] In the face of the increasing complexity of the task
of the government and the increasing inability of the legislature to cope directly
with the many problems demanding its attention, resort to delegation of power,
or entrusting to administrative agencies the power of subordinate legislation,
has become imperative, as here.
Laserna Petition (Constitutionality of Sec. 36[c], [d],
[f], and [g] of RA 9165)
Unlike the situation covered by Sec. 36(c) and (d) of RA 9165, the Court finds no
valid justification for mandatory drug testing for persons accused of crimes. In
the case of students, the constitutional viability of the mandatory, random, and
suspicionless drug testing for students emanates primarily from the waiver by
the students of their right to privacy when they seek entry to the school, and
from their voluntarily submitting their persons to the parental authority of
school authorities. In the case of private and public employees, the
constitutional soundness of the mandatory, random, and suspicionless drug
testing proceeds from the reasonableness of the drug test policy and
requirement.
We find the situation entirely different in the case of persons charged before
the public prosecutors office with criminal offenses punishable with six (6) years
and one (1) day imprisonment. The operative concepts in the mandatory drug
testing are randomness and suspicionless. In the case of persons charged with a
crime before the prosecutors office, a mandatory drug testing can never be
random or suspicionless. The ideas of randomness and being suspicionless are
antithetical to their being made defendants in a criminal complaint. They are not
randomly picked; neither are they beyond suspicion. When persons suspected
of committing a crime are charged, they are singled out and are impleaded
against their will. The persons thus charged, by the bare fact of being haled
before the prosecutors office and peaceably submitting themselves to drug
testing, if that be the case, do not necessarily consent to the procedure, let
alone waive their right to privacy.[40] To impose mandatory drug testing on the
accused is a blatant attempt to harness a medical test as a tool for criminal
prosecution, contrary to the stated objectives of RA 9165. Drug testing in this
case would violate a persons right to privacy guaranteed under Sec. 2, Art. III of
the Constitution. Worse still, the accused persons are veritably forced to
incriminate themselves.

WHEREFORE, the Court resolves to GRANT the petition in G.R. No. 161658 and
declares Sec. 36(g) of RA 9165 and COMELEC Resolution No. 6486 as
UNCONSTITUTIONAL; and to PARTIALLY GRANT the petition in G.R. Nos. 157870
and 158633 by declaring Sec. 36(c) and (d) of RA 9165 CONSTITUTIONAL, but
declaring its Sec. 36(f) UNCONSTITUTIONAL. All concerned agencies are,
accordingly, permanently enjoined from implementing Sec. 36(f) and (g) of RA
9165. No costs.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WE CONCUR:
REYNATO S. PUNO
Chief Justice
LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO
Associate Justice Associate Justice
ANTONIO T. CARPIO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Associate Justice
RENATO C. CORONA CONCHITA CARPIO MORALES
Associate Justice Associate Justice
ADOLFO S. AZCUNA DANTE O. TINGA
Associate Justice Associate Justice
MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
RUBEN T. REYES TERESITA J. LEONARDO-DE CASTRO
Associate Justice Associate Justice
ARTURO D. BRION
Associate Justice

[18] 536 U.S. 822 (2002); cited in 2 Bernas, CONSTITUTIONAL RIGHTS AND
SOCIAL DEMANDS 224-227 (2004).
[19] The right of the people to be secure in their persons, houses, papers, and
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
effects, against unreasonable searches and seizures, shall not be violated, and
conclusions in the above Decision had been reached in consultation before the no Warrants shall issue, but upon probable cause, supported by Oath or
case was assigned to the writer of the opinion of the Court.
affirmation, and particularly describing the place to be searched, and the
persons or things to be seized.
REYNATO S. PUNO
[20] The Fourth Amendment is almost similar to Sec. 2, Art. III of the
Chief Justice
Constitution, except that the latter limited the determination of probable cause
to a judge after an examination under oath of the complainant and his
[1] Re-elected as senator in the 2004 elections.
witnesses. Hence, pronouncements of the US Federal Supreme Court and State
[2] Rollo (G.R. No. 158633), pp. 184-185.
Appellate Court may be considered doctrinal in this jurisdiction, unless they are
[3] Dumlao v. COMELEC, No. L-52245, January 22, 1980, 95 SCRA 392, 401.
manifestly contrary to our Constitution. See Herrera, HANDBOOK ON ARREST,
[4] Bernas, THE 1987 CONSTITUTION OF THE REPUBLIC OF THE PHILIPPINES: A
SEARCH AND SEIZURE 8 (2003).
COMMENTARY 939 (2003).
[21] Tolentino v. Alconcel, No. L-63400, March 18, 1983, 121 SCRA 92, 95-96.
[5] Gonzales v. Narvasa, G.R. No. 140835, August 14, 2000, 337 SCRA 733, 740. [22] Rollo (G.R. No. 158633), p. 204, respondents Consolidated Memorandum.
[6] Tatad v. Secretary of the Department of Energy, G.R. Nos. 124360 & 127867, [23] Rollo (G.R. No. 157870), p. 10.
November 5, 1997, 281 SCRA 330, 349; De Guia v. COMELEC, G.R. No. 104712,
[24] Section 1. No person shall be deprived of life, liberty, or property without
May 6, 1992, 208 SCRA 420, 422.
due process of law, nor shall any person be denied the equal protection of the
[7] Palmer v. Board of Education, 276 NY 222 11 NE 2d 887.
laws.
[8] Cruz, CONSTITUTIONAL LAW 4 (2000).
Sec. 2. The right of the people to be secure in their persons, houses, papers, and
[9] Mutuc v. Commission on Elections, No. L-32717, November 26, 1970, 36
effects against unreasonable searches and seizures of whatever nature and for
SCRA 228, 234.
any purpose shall be inviolable, and no search warrant or warrant of arrest shall
[10] 50 Phil. 259, 309 (1927).
issue except upon probable cause to be determined personally by the judge
[11] J. Bernas, S.J., THE 1987 CONSTITUTION OF THE REPUBLIC OF THE
after examination under oath or affirmation of the complainant and the
PHILIPPINES: A COMMENTARY 604 (1996).
witnesses he may produce, and particularly describing the place to be searched
[12] Id.
and the person or things to be seized.
[13] See concurring opinion in Go v. Commision on Elections, G.R. No. 147741,
[25] Rollo (G.R. No. 158633), p. 9.
May 10, 2001, 357 SCRA 739, 753.
[26] Ople, supra note 16, at 153; citing Cooley on Torts, Sec. 135, Vol. 1, 4th ed.,
[14] RA 9165, Sec. 2.
[1932].
[15] Vernonia School District 47J v. Acton, 515 U.S. 646 (1995), 661.
[27] 62 Am. Jur. 2d, Privacy, Sec. 1.
[16] Ople v. Torres, G.R. No. 127685, July 23, 1998, 293 SCRA 141, 169; citing
[28] 387 U.S. 523; cited in 2 Bernas, supra note 18, at 232.
Morfe v. Mutuc, No. L-20387, January 31, 1968, 22 SCRA 424, 444-445.
[29] 62 Am. Jur. 2d, Privacy, Sec. 17.
[17] Sec. 2. The right of the people to be secure in their persons, houses, papers, [30] Vernonia & Board of Education, supra notes 15 & 18.
and effects against unreasonable searches and seizures of whatever nature and [31] Skinner v. Railway Labor Executives Assn., 489 U.S. 602, 619 (1989); cited in
for any purpose shall be inviolable, and no search warrant or warrant of arrest
Vernonia, supra.
shall issue except upon probable cause to be determined personally by the
[32] Supra note 16, at 166 & 169.
judge after examination under oath or affirmation of the complainant and the
[33] Under Sec. 7 [3] of the DOH IRR Governing Licensing and Accreditation of
witnesses he may produce, and particularly describing the place to be searched Drug Laboratories, a laboratory is required to use documented chain of custody
and the person or things to be seized.
procedures to maintain control and custody of specimens.
CERTIFICATION

[34] DOH IRR Governing Licensing and Accreditation of Drug Laboratories, Sec. 7
[10.3] provides that the original copy of the test results form shall be given to
the client/donor, copy furnished the DOH and the requesting agency.
[35] Id., Sec. 7 [10.4].
[36] Secs. 47 and 48 of RA 9165 charge the Department of Labor and
Employment with the duty to develop and promote a national drug prevention
program and the necessary guidelines in the work place, which shall include a
mandatory drafting and adoption of policies to achieve a drug-free workplace.
[37] CODE OF CONDUCT AND ETHICAL STANDARDS FOR PUBLIC OFFICERS AND
EMPLOYEES, Sec. 2.
[38] CONSTITUTION, Art. XI, Sec. 1.
[39] Tatad, supra note 6, at 351.
[40] Leona Pasion Viuda de Garcia v. Locsin, 65 Phil. 689, 695 (1938); citing
Cooley, CONST. LIM. 630 (8th ed.).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-41161

September 10, 1981

FEDERATION OF FREE FARMERS, MELQUIADES BETIOS CRESENCIANO

FERNANDEZ, SANCHO PEREZ and AGATON POSA petitioners,
vs.
THE HONORABLE COURT OF APPEALS, VICTORIAS MILLING COMPANY, INC.,
VICTORIAS MILL DISTRICT PLANTERS' ASSOCIATION, INC., and ALL SUGARCANE
PLANTERS OF SUGARCANE PLANTATIONS SITUATED IN THE VICTORIAS MILLING
DISTRICT, WHO HAVE AT ONE TIME OR ANOTHER, SINCE JUNE 22,1952, MILLED
THEIR SUGARCANE IN THE MILL OF VICTORIAS MILLING COMPANY, INC.,
respondents.
G.R. No. L-41222

September 10, 1981

VICTORIAS MILLING COMPANY, INC., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, FEDERATION OF FREE FARMERS,
MELQUIADES BETIOS CRESENCIANO FERNANDEZ, SANCHO PEREZ and AGATON
POSA VICTORIAS MILL DISTRICT PLANTERS' ASSOCIATION, INC., and, ALL
SUGARCANE PLANTERS OF SUGARCANE PLANTATIONS SITUATED IN THE
VICTORIAS MILLING DISTRICT, respondents.
G.R. No. L-43153

September 10, 1981

PLANTERS, VICTORIAS MILL DISTRICT, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, FEDERATION OF FREE FARMERS,
MELQUIADES BETIOS, CRESENCIANO FERNANDEZ, SANCHO PEREZ AGATON
POSA, and VICTORIAS MILLING COMPANY, INC., respondents.
G.R. No. L-43369

September 10, 1981

PRIMO SANTOS and ROBERTO H. TIROL, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, FEDERATION OF FREE FARMERS,
MELQUIADES BETIOS CRESENCIANO FERNANDEZ, SANCHO PEREZ, AGATON
POSA and VICTORIAS MILLING COMPANY, INC., respondents.

them from crop year 1952-1953 to November 1, 1955, during which period all
the parties are agreed that Section I of Republic Act 809 was fully applicable, but
that (2) in 1956, VICTORIAS and the PLANTERS had entered into an agreement
which they had no legal right to enter into the way they did, (providing for a 6436 ratio) that is, in a manner that did not conform with the ratio of sharing
between planters and millers specified in the just mentioned legal provision,
(which correspondingly provides for a 70-30 ratio) the FEDERATION maintaining
BARREDO, J:
that after the enactment of Republic Act 809, all planters and millers in all the
sugar milling districts in the Philippines were deprived of the freedom to
Four separate petitions of the respective parties concerned for the review of the stipulate any ratio of sharing of the proceeds of sugarcane milled by the
decision of the Court of Appeals in CA G.R. No. 47298-R, entitled Federation of
respective centrals, as well as their derivatives, in any proportion different from,
Free Farmers, et al. vs. Victorias Milling Co., Inc., et al. of August 12,1975.
specially if less for the planters, than that listed in Section 1 of the Act; and (3)
assuming the PLANTERS and VICTORIAS had the legal right to enter into any
The appellate court held that notwithstanding the provisions of Section 9, in
such agreement, that the 60% of the increase given to the PLANTERS under said
relation to Section 1 of the Sugar Act of 1952, Republic Act 809, providing that
agreement has not been paid up to now to the respective laborers of said
of any increase in the share of the proceeds of milled sugarcane and derivatives PLANTERS. In this connection, the FEDERATION further urges, in this instance,
obtained by the planters from the centrals in any sugar milling district in the
that the Court of Appeals' decision is correct in holding that under the law on
Philippines, 60% of said increase shall correspond to and should be paid by the
torts, the PLANTERS and the CENTRAL are jointly and severally liable for the
planters to their respective laborers, the laborers of the planters affiliated to the payment of the amounts thus due them.
Victorias Milling District who are members of or represented by the Federation
of Free Farmers, one of herein petitioners, have not been fully paid their share
In G.R. No. L-41222, the contentions of petitioner VICTORIAS are: (1) that the
thus provided by law, corresponding to crop years 1955 to 1974, in spite of clear evidence incontrovertibly shows that it has already paid in full to the PLANTERS
evidence in the record showing that the increase of 4% in the share of the
their respective shares in the proceeds of the sugarcane and derivatives milled
Planters, Victorias Milling District, corresponding to all the years since the
by said central from the moment it was legally decided and agreed that it should
enforcement of the aforementioned Act had already been paid by petitioner
do so, (aside, of course, from other issues which albeit related thereto may need
Victorias Milling Co., Inc. to said planters. The Court of Appeals further found
not be resolved here anymore, for reasons herein under to be stated) (2) in its
that even the shares of the laborers corresponding to crop years 1952-1955,
initial petitions in the trial court, the FEDERATION admitted that the laborers
when by operation of the Act, the increase was 10%, had not been paid. The
have been given what is due them as far as the 1952-53 to 1954-55 crops are
appellate court rendered judgment holding the planters of the district and
concerned, and (3) that, even if it were true that the PLANTERS have not paid
Victorias Milling Co., Inc. jointly and severally liable to the said laborers for all
their laborers the corresponding share provided for them by law, the facts and
said alleged unpaid amounts.
circumstances extant in the records do not factually and legally justify the
holding of the Court of Appeals that the Victorias Milling Company, Inc. is jointly
All the four parties involved, namely, (1) the FEDERATION, (2) the PLANTERS, as and severally liable to the laborers for what the latter's respective plantersan association and on behalf of all planters in the Victorias district, (3) two
employers might have failed or refused to pay their laborers or which said
individual planters (SANTOS and TIROL) as well as (4) the CENTRAL (VICTORIAS) planters might have otherwise appropriated unto themselves or absconded. The
are now before Us with their respective opposing positions relative to such
CENTRAL also posits that the action as filed below was not founded on torts but
decision.
on either an obligation created by contract or by law, under neither of which it
could be liable, and moreover, even if such action might be deemed based on
In G. R. No. L-41161, the FEDERATION maintains that (1) the plantation laborers, torts, it has already prescribed, apart from the fact that since the Federation's
its members, have not only not been fully paid the amounts indisputably due
pleadings alleged and prayed for payment of the laborers' share in 1955-56-

1973-74 crop years, the Court of Appeals had no jurisdiction to render judgment
concerning the 1952-53-1954-55 crop years, the latter not having been the
subject of the allegations and prayers of the FEDERATION in its pleadings in the
trial court and all evidence regarding said matters outside of the pleaded issues
were properly and opportunely objected to.
In G. R. No. L-43153, the PLANTERS, aside from asserting (1) their freedom to
stipulate with the CENTRAL such ratio of sharing as they might agree upon,
regardless of the ratios specified in Section 1 of the Sugar Act, (2) insist that
their respective laborers have already been fully paid what is due them, under
the law insofar as the 1952-53 to 1954-55 crop years are concerned, thereby
impliedly if not directly admitting that as provided by law, the CENTRAL or
VICTORIAS had already paid them the increase they had agreed upon and (3)
that, in any event, the milling company should reimburse them whatever
amounts they might be adjudged to pay the laborers.

operation milling districts in which there were still existing, on June 22, 1952,
written milling agreements between the majority of planters and the millers.
III RESPONDENT THE HONORABLE COURT OF APPEALS erred in not holding that
as contended by the Honorable Secretary of Labor, and ,in effect, the Honorable
Secretary of Justice, the purpose and intendment of Republic Act No. 809,
admittedly pattern after the Rice Share Tenancy Act, is to firmly fix by law,
effective and, therefore, the legal effect June 22, 1952, the sharing participation
among the millers, the planters and the latter's laborers in the unrefined sugar
produced in districts not exempt, as well as all by-products and derivatives
thereof, and, consequently, to prohibit in said districts written milling
agreements, executed subsequent to said date, providing for sharing
arrangements different from or contrary to the schedule fixed under said
Sections 1 and 9, and, to prevent any form of circumvention thereof.

IV
RESPONDENT THE HONORABLE COURT OF APPEALS erred in holding
Lastly, in G. R. No. L-43369, planters PRIMO SANTOS and ROBERTO H. TIROL,
that in order 'to safeguard, preserve, and maintain the integrity, viability, and
who are among the planters in the Victorias District, complain that the decision health of an industry so vital to the entire economy of the country' as sugar
of the Court of Appeals ignored their plea of lack of jurisdiction of the trial court industry the lawmakers intended to place in the hands of the millers and the
over their persons in spite of their proven claim that they had not been properly planters the operation of Republic Act No. 809 -- i. e. to enable them to stipulate
served with summons, and that the portion of said decision holding them jointly in their written milling agreements executed subsequent to June 22, 1952
and severally liable with VICTORIAS and the PLANTERS to the latter's laborers for participations those prescribed in Section 1 thereof
the amounts here in question has no factual and legal basis, considering they
were not parties to the pertinent questioned agreements.
V
RESPONDENT THE HONORABLE COURT OF APPEALS erred in invoking
the 'Rules and Regulations to Implement Section 9 of Republic Act 809 dated
I
February 23,1956, as amended on May 4, 1956 (Exhibit GGG) to support its
conclusion that the lawmakers intended to place in the hands of the millers and
In its petition, the FEDERATION assigns the following alleged errors in the
the planters the operation of Republic Act No. 809 - i. e. to enable them to
decision under review:
stipulate in their written milling agreements executed subsequent to June 22,
1952 participations different from those prescribed in Section 1 thereof (Pp. 44I RESPONDENT THE HONORABLE COURT OF APPEALS erred in not holding that
45, L-41161 Rec., Vol. 1.)
as contended by the Honorable Secretary of Labor, and, in effect the Honorable
Secretary of Justice, the phrase 'written milling agreements' in the aforequoted In its brief here, however, it assigns ten alleged errors thus:
Section I of Republic Act No. 809 has exclusive reference to written milling
agreements still existing upon the effectivity of the law on June 22, 1952, and,
-Inot to those executed subsequent to said date.
RESPONDENT COURT ERRED IN DISREGARDING THE OPINION OF THE
II RESPONDENT THE HONORABLE COURT OF APPEALS erred in not holding that HONORABLE SECRETARY OF LABOR AND, IN EFFECT, OF THE HONORABLE
the purpose and intendment of Republic Act No. 809 is to exempt from its
SECRETARY OF JUSTICE, AND, IN NOT HOLDING THAT THE 'WRITTEN MILLING
AGREEMENTS' CONTEMPLATED IN SECTION I OF REPUBLIC ACT NO. 809 BY THE

FRAMERS THEREOF WERE THOSE LONG-TERM WRITTEN MILLING AGREEMENTS

REFERRED TO IN THE REPORT OF CHIEF JUSTICE MANUEL V. MORAN, MOST, IF
NOT ALL, OF WHICH HAD EXPIRED AS EARLY AS 1951, AND, NOT THOSE WHICH
THE MILLERS AND THE PLANTERS MIGHT EXECUTE SUBSEQUENT TO THE DATE
THE ACT WOULD TAKE EFFECT

INDUSTRY SO VITAL TO THE ENTIRE ECONOMY OF THE COUNTRY AS THE SUGAR

INDUSTRY WAS TO PROMOTE SOCIAL JUSTICE AND PROTECT THE PLANTATION
LABORERS THEREIN BY DETERMINING AND FIXING THE RESPECTIVE JUST
PARTICIPATIONS IN THE BENEFITS FROM SAID INDUSTRY AMONG THE MILLERS,
THE PLANTERS AND THE PLANTATION LABORERS

-II-

-V-

RESPONDENT COURT ERRED IN DISREGARDING THE EXPLANATION MADE BY

REPRESENTATIVE CARLOS HILADO, SPONSOR OF HOUSE BILL NO. 1517, AND, IN
NOT HOLDING THAT, BY INSERTING BEFORE THE TEXT OF SECTION I OF
REPUBLIC ACT NO. 809 THE PHRASE IN THE ABSENCE OF WRITTEN MILLING
AGREEMENTS BETWEEN THE MAJORITY OF PLANTERS AND THE MILLERS OF
SUGARCANE IN ANY MILLING DISTRICT,' THE FRAMERS OF SAID LAW INTENDED
TO EXEMPT FROM THE OPERATION THEREOF THOSE MILLING DISTRICTS, IF ANY,
WHEREIN THERE WERE STILL EXISTING, ON THE DATE THE LAW WOULD TAKE
EFFECT, THOSE LONG-TERM WRITTEN MILLING AGREEMENTS BETWEEN THE
MILLERS AND A MAJORITY OF THEIR ADHERENT PLANTERS PROVIDING FOR
SHARING ARRANGEMENTS; SAID EXEMPTION BEING MERELY A PRECAUTIONARY
MEASURE TO PRECLUDE SAID MILLERS, IF ANY, FROM CHALLENGING THE LAW
AS BEING VIOLATIVE OF PARAGRAPH 10, SECTION 1, ARTICLE III OF THE OLD
CONSTITUTION

RESPONDENT COURT ERRED IN DISREGARDING THE OPINION OF THE

HONORABLE SECRETARY OF LABOR AND, IN EFFECT, OF THE HONORABLE
SECRETARY OF JUSTICE, AND, IN NOT HOLDING THAT, EFFECTIVE JUNE 22, 1952
AND THEREAFTER, EVEN BEYOND CROP MILLING YEAR 1973-1974 AS LONG AS
THE ACTUAL PRODUCTION CONTINUES TO EXCEED ONE MILLION TWO
HUNDRED THOUSAND (1,200,000) PICULS, THE SUGAR PRODUCE IN THE
VICTORIAS MILL DISTRICT, AS WELL AS ALL ITS BY-PRODUCTS AND DERIVATIVES,
SHOULD BE DIVIDED AMONG THE CENTRAL, THE PLANTERS AND THE LABORERS
AS FOLLOWS: THIRTY (30%) PER CENT FOR THE CENTRAL, SIXTY-FOUR (64%) PER
CENT FOR THE PLANTERS AND SIX (6%) PER CENT FOR THE LABORERS.

-IIIRESPONDENT COURT ERRED IN DISREGARDING THE OPINION OF THE

HONORABLE SECRETARY OF LABOR AND, IN EFFECT, OF THE HONORABLE
SECRETARY OF JUSTICE, AND, IN NOT HOLDING THAT IT IS CONTRARY TO THE
PURPOSE AND INTENDMENT OF THE FRAMERS OF REPUBLIC ACT NO. 809 THAT
'THE OPERATION AND APPLICABILITY OF THE SUGAR ACT WOULD REST UPON
THE AGREEMENT, THE BILATERAL WILL OF THE CENTRAL AND THE MAJORITY OF
THE PLANTERS OR PERHAPS THEIR COLLUSION, TO THE EXCLUSION OF AND THE
DETRIMENT OF THE LABORERS, WHOM CONGRESS AS A MEASURE OF LAW AND
PUBLIC POLICY CLEARLY INTENDED TO BENEFIT'
-IVRESPONDENT COURT ERRED IN NOT HOLDING THAT WHAT THE FRAMERS OF
REPUBLIC ACT NO. 809 HAD CONTEMPLATED IN ORDER TO SAFEGUARD,
PRESERVE, AND MAINTAIN THE INTEGRITY, VIABILITY, AND HEALTH OF AN

-VIRESPONDENT COURT ERRED IN DISREGARDING THE OPINION OF THE

HONORABLE SECRETARY OF LABOR AND, IN EFFECT, OF THE HONORABLE
SECRETARY OF JUSTICE, THAT THE 'AMICABLE SETTLEMENT-COMPROMISE
AGREEMENT DATED MARCH 5, 1956 (EXHIBITS XXX THRU XXX-6) IS CONTRARY
TO REPUBLIC ACT NO. 809, AND, THEREFORE, NULL AND VOID AB INITIO
-VIIRESPONDENT COURT ERRED IN DISREGARDING THE OPINION OF THE
HONORABLE SECRETARY OF LABOR AND, IN EFFECT, OF THE HONORABLE
SECRETARY OF JUSTICE, THAT 'THE GENERAL COLLECTIVE SUGAR MILLING
CONTRACT (EXHIBITS YYY THRU YYY-7) AND THE INDIVIDUAL SUGAR MILLING
CONTRACTS' (EXHIBITS SSS THRU SSS-28 AND ZZZ THRU ZZZ-7), IN SO FAR AS
THEY REPRODUCE, CONFIRM AND RATIFY THE 'AMICABLE SETTLEMENTCOMPROMISE AGREEMENT' DATED MARCH 5,1956 (EXHIBITS XXX THRU XXX-6)
AND/OR ARE DERIVED THEREFROM, ARE CONTRARY TO REPUBLIC ACT NO. 809,
AND, THEREFORE, NULL AND VOID AB INITIO
-VIII-

RESPONDENT COURT ERRED IN NOT ORDERING THE CENTRAL AND THE

PLANTERS, JOINTLY AND SEVERALLY, TO ACCOUNT AND PAY FOR THE FAIR
MARKET VALUE OF THE SIX (6%) PER CENT SHARE OF THE LABORERS IN THE
PROCEEDS OF THE ANNUAL UNREFINED SUGAR PRODUCE AS WELL AS ITS BYPRODUCTS AND DERIVATIVES FOR THE PERIOD BEGINNING NOVEMBER 1, 1955,
WITH LEGAL INTEREST THEREON COMMENCING FROM OCTOBER 31, 1956
UNTIL FULLY PAID
-IXRESPONDENT COURT ERRED IN FAILING TO CONSIDER AND RESOLVE THE
LABORERS' TWENTY-SEVENTH ASSIGNMENT OF ERROR AND IN NOT IMPOSING
UPON THE CENTRAL AND THE PLANTERS, JOINTLY AND SEVERALLY, THE
LIABILITY TO PAY THE LABORERS BY WAY OF EXEMPLARY DAMAGES, TO SET AN
EXAMPLE FOR THE PUBLIC GOOD, THE SUM EQUIVALENT TO AT LEAST TWENTY
(20%) PER CENT OF ALL THE AMOUNTS TO WHICH THE LABORERS MAY BE
ENTITLED

3.
Assuming arguendo that the phrase 'under this Act' includes
subsequently executed written milling contracts providing for increased
participation on the part of the planters in the amount of 4%, on the basis of
which milling contracts the claim of the FFF et als. to 60% of said 4% share' is
founded, did not the Court of Appeals erroneously hold, said Court acting
contrary to law and to the facts and admissions of the parties, that petitioner
Vicmico is jointly and solidarily liable, on the ground of tort, with the planters for
said 60% of 4%?
4.
May petitioner Vicmico be held jointly and solidarily liable for tort for
60% of the 4% increased participation of the planters as provided for the latter
under the milling contracts, even in the absence of allegations or evidence of
acts constituting tort and notwithstanding the admitted fact that petitioner
Vicmico has, since November 1, 1955, regularly delivered to the planters, as
required by law and contract, said 4% increase in participation?

5.
May respondent Court of Appeals, on the basis of tort, validly hold
petitioner Vicmico jointly and severally liable with the planters (a) for said 60%
of the 4% increase in the planters' participation notwithstanding the fact that
-XFFF et als. did not proceed on the theory of tort which had long prescribed, as
admitted by FFF et als. but on the basis of contract or obligations created by
RESPONDENT COURT ERRED IN REDUCING THE JOINT AND SEVERAL LIABILITY OF law, (b) as well as for alleged causes of action that accrued subsequent to the
THE CENTRAL AND THE PLANTERS FOR CONTINGENT ATTORNEY'S FEES FROM
filing on November 9, 1962 of the petition of the FFF et als., even in the absence
THE STIPULATED SUM EQUIVALENT TO TWENTY (20%) PER CENT OF ALL THE
of any supplemental petition or amendment to the pleadings effected before
AMOUNTS TO WHICH THE LABORERS MAY BE ENTITLED TO A SUM EQUIVALENT judgment?
TO TEN (10%) PER CENT THEREOF
6.
Did not the Court of Appeals gravely abuse its discretion, said abuse
On the other hand, VICTORIAS presents in its petition the following so-called
amounting to lack of jurisdiction when it awarded the laborers P 6,399,105.00,
issues of substance and grounds for allowance of its petition:
plus interest thereon at 6% and P180,769.38, plus interest thereon at 6%, said
awards allegedly representing the share pertaining to the laborers from June 22,
1.
Considering the attendant existence of written milling agreements
1952 to October 31, 1955, - (a) in the face of the laborers' admission that they
between petitioner Vicmico and the planters, which written milling agreements had received their lawful participation during said period; (b) in the face of any
were held to be legal and valid by the Court of Appeals, is Republic Act No. 809 lack of allegation in the petition concerning any cause of action relative thereto;
applicable in the case at bar?
(c) in the face of the Court of Appeals' ruling that the amicable settlement is
legal and valid; and (d) in the face of the undeniable fact that, as per the very
2.
In interpreting the phrase 'under this Act' appearing in Section 9 of
evidence presented by the FFF, et als., Vicmico delivered all the amounts
Republic Act No. 809, as embracing written milling agreements executed
pertaining to the laborers to the planters, and the laborers actually received said
subsequent to the effectivity of said law, did not the Court of Appeals
amounts as demonstrated by Exhibit '23-Vicmico'?
unauthorizedly and unfoundedly indulge in judicial legislation?

7.
The petition of the FFF, et als. being essentially a suit for accounting,
considering that the amicable settlement and milling agreements are valid and
binding, as held by the Court of Appeals on the basis of facts found by it, and
considering, further, the evidence and admissions of the parties to the effect
that petitioner Vicmico complied with all of its obligations thereunder, by
delivering all of the increased share to the planters, as required by law and
contract, did not the Court of Appeals manifestly err and grossly abuse its
discretion in not taking the foregoing matters into consideration and
nevertheless holding petitioner Vicmico jointly and severally liable with the
planters?

SAID PHRASE CLEARLY EXCLUDES WRITTEN MILLING AGREEMENTS AND IN VIEW

OF THE CIRCUMSTANCE THAT THE APPLICABILITY OF SECTION 9 IS DEPENDENT
UPON THE ENFORCEMENT OF SECTION I OF THE SAME LAW.
III
Third Assignment of Error

THE COURT OF APPEALS ERRED IN HOLDING THAT THE LEGISLATIVE INTENT AND
HISTORY OF REPUBLIC ACT 809 POINT TO NO OTHER CONCLUSION THAN THAT
SECTION 9 OF SAID ACT ALSO EMBRACES WRITTEN MILLING AGREEMENTS,
8.
In any event, is Republic Act No. 809, otherwise known as the 'Sugar Act SINCE THE LEGISLATIVE INTENT AND HISTORY DEMONSTRATE OTHERWISE AND
of 1952', constitutional?
CLEARLY SHOW THAT SECTION 9 IS NOT AT ALL APPLICABLE DURING PERIODS
WHEN MILLING CONTRACTS EXIST BETWEEN THE CENTRAL AND THE PLANTERS.
9.
Is the action filed by the laborers properly brought as a class suit?
IV
10.
Did the Court of Agrarian Relations have jurisdiction over the subject
matter of the laborers' suit at the time the same was filed on November
Fourth Assignment of Error
9,1962?" (Pp 18-22, Rec., G.R. No. L-41222)
THE COURT OF APPEALS ERRED IN HOLDING THAT REPUBLIC ACT 809 IS A PIECE
and the following assignment of errors:
OF SOCIAL LEGISLATION THAT UNCONDITIONALLY AND EQUALLY GRANTS
BENEFITS TO LABORERS IN THE SUGAR INDUSTRY. SINCE SAID ACT IS
I
DISCRIMATORY, SAID SELECTIVE OR DISCRIMINATORY FEATURE BEING MADE
MORE MANIFEST BY THE INTERPRETATION OF THE COURT OF APPEALS AS WELL
First Assignment of Error
AS BY THE AMENDED RULES OF THE DEPARTMENT OF LABOR, WHICH
AMENDED RULES ARE NULL AND VOID AS CONTRARY TO LAW.
THE COURT OF APPEALS ERRED IN HOLDING THAT REPUBLIC ACT 809 IS
APPLICABLE EVEN IN THE PRESENCE OF WRITTEN MILLING AGREEMENTS
V
BETWEEN THE CENTRAL AND THE PLANTERS, SINCE THE PROVISIONS OF SAID
ACT AS CLEARLY STATED IN THE STATUTE ITSELF BECOME OPERATIVE ONLY 'IN
Fifth Assignment of Error
THE ABSENCE' OF WRITTEN MILLING AGREEMENTS.
ASSUMING ARGUENDO, THAT THE HONORABLE COURT OF APPEALS CORRECTLY
II
INTERPRETED REPUBLIC ACT 809 AS APPLICABLE EVEN WHEN THE CENTRAL
AND THE PLANTERS HAVE SUBSEQUENTLY EXECUTED WRITTEN MILLING
Second Assignment of Error
AGREEMENTS, AS IN THE CASE AT BAR, THE COURT OF APPEALS ERRED IN
HOLDING PETITIONER VICMICO JOINTLY AND SEVERALLY LIABLE WITH THE
THE COURT OF APPEALS ERRED IN CONSTRUING THE PHRASE UNDER THIS ACT
PLANTERS ON THE BASIS OF TORT FOR 60% OF THE 4% INCREASED
EMBODIED IN SECTION 9 OF REPUBLIC ACT NO. 809 AS INCLUDING OR
PARTICIPATION OF THE PLANTERS AND FOR AMOUNTS ALLEGEDLY DUE THE
EMBRACING WRITTEN MILLING AGREEMENTS EXECUTED AFTER SAID ACT TOOK LABORERS FROM JUNE 22,1952 TO OCTOBER 31,1955, SAID ERROR BEING
EFFECT ON JUNE 22,1952, IN VIEW OF THE FACT THAT THE EXPRESS IMPORT OF EVIDENT IN VIEW OF THE FACT THAT RESPONDENTS FFF ET ALS. DID NOT

PROCEED ON THE THEORY OF TORT BUT ON THE THEORY OF CONTRACTS OR

IX
OBLIGATIONS CREATED BY LAW AND IN VIEW OF THE FACT THAT SAID WRITTEN
MILLING AGREEMENTS HAVE NOT PROVIDED FOR ANY SOLIDARY LIABILITY, THE Ninth Assignment of Error
TERMS OF SAID WRITTEN MILLING AGREEMENTS HAVING, MOREOVER, BEEN
FAITHFULLY COMPLIED WITH BY PETITIONER VICMICO
WITH REFERENCE TO THE AMOUNT OF P6,399,105.00 AND THE AMOUNT OF
P180,769.38, WHICH ACCRUED IN FAVOR OF THE LABORERS FROM JUNE 22,
VI
1952 TO OCTOBER 31,1955 WHEN THERE WAS AS YET NO WRITTEN MILLING
AGREEMENT, IN VIEW OF THE FACT THAT THE LABORERS ADMITTED IN THEIR
Sixth Assignment of Error
PETITION THAT THE PLANTERS GAVE THEM THEIR LAWFUL PARTICIPATION
FROM JUNE 22,1952 TO OCTOBER 31,1955 AND THERE BEING, MOREOVER, NO
THERE BEING NO ALLEGATION OR PROOF OF ACTS CONSTITUTING TORT OR
ALLEGATION OF ANY CAUSE OF ACTION RELATIVE THERETO, THE COURT OF
EVEN CONSTITUTING ANY VIOLATION OF THE WRITTEN MILLING CONTRACTS
APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT HELD
ON THE PART OF PETITIONER VICMICO IN CONNECTION WITH THE LABORERS
PETITIONER VICMICO AND THE PLANTERS JOINTLY AND SEVERALLY LIABLE VIA
CLAIM OF 60% OF THE 4% INCREASED PARTICIPATION OF THE PLANTERS AND
TORT FOR SAID AMOUNTS.
THERE BEING, MOREOVER, NO AMENDED OR SUPPLEMENTAL PLEADINGS FILED
BY FFF ET ALS. INVOLVING ANY CAUSE OF ACTION BASED ON TORT, THE COURT X
OF APPEALS ERRED IN NEVERTHELESS HOLDING PETITIONER VICMICO JOINTLY
AND SEVERALLY LIABLE WITH PLANTERS, ON THE BASIS OF TORT
Tenth Assignment of Error
VII

VIII

HAVING FOUND THE MILLING AGREEMENT AND THE AMICABLE SETTLEMENTCOMPROMISE AGREEMENT (ASCA) TO BE VALID, THE COURT OF APPEALS ERRED
IN HOLDING THAT PETITIONER VICMICO AND THE PLANTERS HAD NO
AUTHORITY TO STIPULATE IN SAID ASCA ON THE DISPOSITION OF THE
AMOUNTS PERTAINING TO THE LABORERS FROM JUNE 22, 1952 TO OCTOBER
31,1955, THE PLANTERS BEING THE AUTHORIZED AGENTS OF THE LABORERS BY,
AMONG OTHERS, HAVING RECEIVED ALL THE AMOUNTS DUE THEM, HAVING
MOREOVER RATIFIED SAID ASCA.

Eighth Assignment of Error

XI

IN ANY EVENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
PLANTERS WERE THE AGENTS OF THE LABORERS WHOSE CAUSE OF ACTION, IF
ANY, FOR 60% OF THE 4% INCREASED PARTICIPATION OR FOR THOSE AMOUNTS
PERTAINING TO 'THE PERIOD FROM JUNE 1952 TO OCTOBER 31, 1955, SOLELY
LIES AGAINST SAID PLANTERS AS THEIR AGENTS. IN VIEW OF THE FACT THAT
PETITIONER VICMICO FAITHFULLY DELIVERED, AS ADMITTED BY THE PARTIES
AND FOUND BY THE HONORABLE COURT, ALL OF SAID AMOUNTS TO THE
PLANTERS WHOSE OBLIGATION, IN TURN, WAS TO DISTRIBUTE TO THEIR
RESPECTIVE LABORERS THE LATTER'S SHARE.

Eleventh Assignment of Error

Seventh Assignment of Error

THE COURT OF APPEALS ERRED, IN ANY EVENT, IN NOT HOLDING THAT ANY
ACTION BASED ON TORTS HAS LONG PRESCRIBED.

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE LABORERS DID NOT
RECEIVE THE AMOUNT OF P6,399,105.00 AND IN HOLDING, ON THE BASIS OF
TORT, PETITIONER VICMICO, JOINTLY AND SEVERALLY LIABLE WITH THE
PLANTERS THEREFOR, EXHIBIT 23-VICMICO CLEARLY SHOWING ON ITS FACE
THAT THE LABORERS ACTUALLY RECEIVED A TOTAL OF P6,536,741.98 AND THE
COURT OF APPEALS HAVING FOUND THAT ALL AMOUNTS PERTAINING TO THE
LABORERS HAD BEEN RECEIVED BY THE PLANTERS, THE FOREGOING

DEMONSTRATING, AMONG OTHERS, THAT PETITIONER VICMICO CANNOT BE

ACCUSED OF ANY TORTIOUS ACT.
XII
Twelfth Assignment of Error
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE PETITION OF FFF, ET
ALS. IS ESSENTIALLY AN ACTION FOR ACCOUNTING, SAID ACTION REQUIRING A
PRIOR DETERMINATION OF THE RIGHT TO ACCOUNTING AND THE ACCOUNTING
ITSELF, A SEQUENCE THAT HAS NOT BEEN ADHERED TO BY THE COURT OF
APPEALS WHEN IT ENTERED A FINAL JUDGMENT FOR UNDETERMINED AND
SPECIFIC AMOUNTS, NOTWITHSTANDING FFF, ET ALS.' ABSENCE OF ANY RIGHT
TO ACCOUNTING AGAINST PETITIONER VICMICO, THEIR RIGHT, IF ANY, BEING
EXCLUSIVELY AGAINST THE PLANTERS.
XIII
Thirteenth Assignment of Error

Sixteenth Assignment of Error

THE COURT OF APPEALS ACCORDINGLY ERRED IN NOT ABSOLVING PETITIONER
VICMICO FROM ALL OBLIGATIONS (A) FOR 60% OF THE 4%, INCREASED
PARTICIPATION OF THE PLANTERS, (B) FOR P 6,399,105.00 AND P 180,768.38,
AND (C) FOR ATTORNEY'S FEES. (A to K of VICTORIAS' Brief)
On its part, as grounds relied upon for the allowance of their petition, the
PLANTERS submit that:
-ATHE COURT OF APPEALS ERRED IN CONCLUDING THAT, WHILE THE AGREEMENT
BETWEEN THE CENTRAL AND THE PLANTERS WITH RESPECT TO THE 64-36
SHARING BASIS IS VALID, YET THERE MUST BE READ INTO IT THE PROVISO THAT
60% OF THE INCREASE IN THE PARTICIPATION OF THE PLANTERS SHALL PERTAIN
TO THE PLANTATION LABORERS IN ACCORDANCE WITH SECTION 9 OF REPUBLIC
ACT NO. 809, OTHERWISE KNOWN AS THE SUGAR ACT OF 1952.

IN ANY EVENT, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT REPUBLIC -B ACT 809, OTHERWISE KNOWN AS THE SUGAR ACT OF 1952, IS
UNCONSTITUTIONAL.
THE COURT OF APPEALS ERRED IN HOLDING PETITIONER PLANTERS JOINTLY
AND SEVERALLY LIABLE, ON THE BASIS OF TORT WITH CENTRAL
XIV
NOTWITHSTANDING THE FACT THAT IT FOUND THE ASCA PERFECTLY VALID AND
NOT IN CIRCUMVENTION OF THE LAW.
Fourteenth Assignment of Error
-CTHE COURT OF APPEALS ERRED IN HOLDING THAT THE ACTION FFF, ET ALS. HAS
BEEN IMPROPERLY BROUGHT AS A CLASS SUIT.
THE COURT OF APPEALS ERRED IN FINDING THAT THE P4,000,000.00, OF THE
P5,186,083.34, PERTAINING TO THE SHARE OF THE PLANTATION LABORERS
XV
WITHIN THE VICTORIAS MILL DISTRICT FROM JUNE 22,1952 TO OCTOBER 31,
1955, WAS NOT DISTRIBUTED TO THE SAID PLANTATION LABORERS SIMPLY
Fifteenth Assignment of Error
BECAUSE NEITHER THE CENTRAL, NOR THE PLANTERS NOR THE SPECIAL
COMMITTEE PRESENTED EVIDENCE AS TO ITS DISTRIBUTION.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COURT OF
AGRARIAN RELATIONS HAD NO JURISDICTION OVER THE SUBJECT MATTER OF
-D THE SUIT AT THE TIME THE SAME WAS FILED ON NOVEMBER 9, 1962.
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE RESPONDENTS'
XVI
PETITION IS NOT PROPER AS A CLASS SUIT.

-ETHE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COURT OF

AGRARIAN RELATIONS HAD NO JURISDICTION OVER THE SUBJECT MATTER OF
THE SUIT AT THE TIME THE SAME WAS FILED BY THE FFF, ET ALS. ON
NOVEMBER 9,1962.
-FTHE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COURT OF
AGRARIAN RELATIONS HAD NOT ACQUIRED JURISDICTION OVER THE PERSONS
OF THE PLANTERS WHO WERE SERVED SUMMONS BY PUBLICATION, DUE TO
DEFECTIVE SERVICE OF SUMMONS BY PUBLICATION. (Pp. 33-34, L-43153 Rec.,
Vol, 1.)
Petitioners Primo Santos and Roberto H. Tirol formulate their reasons for their
petition for review thus:

therefore, they (the movants) should not be adjudged jointly and severally liable
for the alleged loss of such amount and its increments. (Page 7, L- 43369 Rec.)
The foregoing numerous assignments of error supposedly committed by the
Court of Appeals would, if all of them were to be separately considered, call for
a very extended discussion, necessarily making this opinion tediously long. But
We have repeatedly received from all the parties motions for early resolution of
these cases, which although relatively new in this Court, were indeed started in
the Court of Agrarian Relations, Bacolod Branch, more than eighteen (18) years
ago. And, considering they involve an enormous amount constituting, as it were,
another windfall for the least favored element - the farm laborers - of the once
prosperous sugar industry in Negros Occidental, We will limit Ourselves to the
fundamental and pivotal matters, and thus put finis as briefly as possible, to this
important controversy together with all hardships its long pendency has entailed
for all the parties concerned, particularly the laborers.

Anyway, going carefully with detailed attention over the numerous issues raised
in the so-called grounds for allowance alleged by the parties in their respective
petitions, it would be readily noted, that most of them deal with but a few
1.
The Hon. Court of Appeals failed to resolve a most important
fundamental issues, some of them, already settled and determined, as a matter
question as to whether or not the lower court had acquired jurisdiction over the of fact, by this Supreme Court, in its decision in a related case, that of Asociacion
persons of defendants-appellees Primo Santos and Roberto H. Tirol due to
de Agricultores de Talisay-Silay Inc. vs. Talisay-Silay Milling Co., Inc., 88 SCRA
defective service of summons by publication.
294, and its resolution of the motion for reconsideration thereof as reported in
89 SCRA 311. Indeed, in its second motion dated July 8,1980 for promulgation of
2.
The Sugar Act of 1952 (Rep. Act No. 809) may be interpreted as not
decision, the FEDERATION acknowledges expressly that "the constitutionality of
to preclude freedom of contract between the majority of the plantation owners the Sugar Act of 1952 as well as the construction and interpretation thereof"
and the central; but the law should not later be applied only in part as to benefit have been set at rest by Us in said case. In the main, therefore, insofar as such
and favor the Central to the great prejudice of both the plantation owners and
basically similar and resolved issues are concerned, We shall refer to them here
the laborers.
already as settled juridical premises whenever it should be proper to do so in
resolving the issues in these cases.
3.
Defendant Primo Santos being a mere LESSEE, not the owner of
"Hda. Kana-an" and NOT having signed any milling contract with the Victorias
II
Milling Co., he should not be made jointly and severally liable with the central
and the plantation owners for acts and/or contracts in which he had no part nor To set them forth briefly, among the issues in these instant cases, which this
intervention whatsoever.
Court has already resolved with finality in the Talisay- Silay case are the
following:
4.
There is no evidence that the individual planters, particularly the
defendants-movants herein had any knowledge of nor intervention in the
-Acustody of the sum of P4,000,000 belonging to the plantation laborers which
was supposedly entrusted to a "Special Committee" of five (5) members; and,

That Republic Act 809, as a social legislation founded not only on police power
but more importantly on the social welfare mandates of the Constitution, is
undoubtedly constitutional in all its aspects material and relevant to the instant
cases. We deem it would be a fruitless exercise for Us to rediscuss and belabor
that point here. Indeed, We find the position of the Court of Appeals thereon to
be well studied and discussed and totally correct, being as they are substantially
in line with the pertinent considerations on the same point expressed in Our
Talisay-Silay decision.

C.
Ground A of the PLANTERS in G.R. No. L-43153 in Planters, Victorias
Milling District vs. Court of Appeals, et al.
as well as the corresponding refutations thereof and counter-assignments of the
respective parties relative to the just-mentioned assignments of error or
grounds for allowance, but none of the points raised by petitioners in Santos
and Tirol vs. Court of Appeals, et al. G.R. No. L-43369.
III

-BTo facilitate understanding of the resolution of these cases, let it be recalled

that, as is more extensively discussed in the portions of the decision of the Court
of Appeals herein under to be quoted, previous to the passage of Republic Act
809 or the Sugar Act of 1952, almost all over the country, and particularly in the
sugar milling districts of Negros Occidental, the centrals practically dominated
the economic fate of the planters and the laborers of the latter. The common
prevalent ratio of sharing of the proceeds of the sugarcane milled by said
centrals was fixed at 40% for the centrals and 60% for the planters, both parties
dealing with and paying their respective laborers at rates which were considered
subnormal, so much so that President Manuel Quezon had to appoint a
committee headed by Chief Justice Manuel Moran to investigate the economic
and social conditions in the whole sugar industry. As expected, the report
recommended more effective measures to ease the stranglehold of the centrals
Suffice it, therefore, to refer, insofar as said issues are concerned, to the
over the planters, and more importantly, to ameliorate the conditions of labor,
decision of the Court of Appeals, which We hereby uphold, and to Our own
even to the extent of utilizing police power steps for the purpose, if needed.
discourse thereon as well as Our construction of Section 1 thereof regarding the Hence, the above mentioned Sugar Act came into being . 1
freedom of the centrals and the planters to agree on how they would share the
proceeds of the milled sugarcane made in Our decision of April 3, 1979 and
Section 1 thereof provides thus:
resolution of February 19, 1979 earlier mentioned above. Covered here by this
adoption by reference and, therefore deemed resolved in line with Talisay-Silay SECTION 1
In the absence of written milling agreements between the
are the following assignments of error of the parties hereto, an of which We
majority of planters and the millers of sugar-cane in any milling district in the
have quoted at the outset of this opinion:
Philippines, the unrefined sugar produced in that district from the milling by any
sugar central of the sugar-cane of any sugar-cane planter or plantation owner as
A.
I to V in the FEDERATION's brief in G.R.No.L-41161 in Federation, etc., et well as all by-products and derivatives thereof, shall be divided between them as
al. vs. Court of Appeals, et al.;
follows:
Aside from upholding the constitutionality of Republic Act 809, We further ruled
in Talisay-Silay that the predicate or prerequisite of absence of milling
agreements for the application of Section 1 of the Act does not refer exclusively
to the expiration of the then existing contracts (those that expired before the
approval of the Act) but even to future failure of centrals and planters to enter
into written milling contracts; that, therefore, there is nothing in the law that
excludes the right of said parties to enter into new contracts, and that in said
new contracts, they could provide for a ratio of sharing different from that
stipulated in Section I of the Act, provided, of course, that any increase of their
share in the proceeds of milling that the PLANTERS would get, 60% thereof must
be paid by them to their respective plantation laborers.

B.
Nos. 1, 2 and 8 of its so-called questions of substance and assignment of Sixty per centum for the planter, and forty per centum for the central in any
errors I, II and IX, of VICTORIAS in G.R. No. L-41222 in Victorias Milling Co., Inc.
milling district the maximum actual production of which is not more than four
vs. Court of Appeals, et al.; and
hundred thousand piculs: Provided, That the provisions of this section shall not

apply to sugar centrals with an actual production of less than one hundred fifty
thousand piculs;

points raised by it here, when they asked Us to consider in deciding that case
their arguments in their brief filed with the Court of Appeals, copy of which was
furnished Us. The decision of this case must then be predicated fundamentally
Sixty-two and one-half per centum for the planter, and thirty-seven and one-half on the Talisay-Silay rulings insofar as they may be pertinent here.
per centum for the central in any milling district the maximum actual production
of which exceeds four hundred thousand piculs but does not exceed six hundred We can now, therefore, proceed to discuss the aspects of the cases that require
thousand piculs;
disquisition and disposal.
Sixty-five per centum for the planter, and thirty-five per centum for the central
in any milling district the maximum actual production of which exceeds six
hundred thousand piculs but does not exceed nine hundred thousand piculs;

IV

To start with, the PLANTERS, VICTORIAS and SANTOS-TIROL impugn the

jurisdiction of the Court of Agrarian Relations, 11th Regional District, Branch I
Sixty-seven and one-half per centum for the planter, and thirty-two and one-half Bacolod City, in taking cognizance of this case, with SANTOS and TIROL
per centum for the central in any milling district the maximum actual production contending that since this is an action in personam, service to them by
of which exceeds nine hundred thousand piculs but does not exceed one million publication is invalid, hence, the trial court did not acquire jurisdiction over their
two hundred thousand piculs;
person; even as VICTORIAS and PLANTERS maintain that not all the planters'
members have been properly summoned, considering that some of them were
Seventy per centum for the planter, and thirty per centum for the central in any served summons only also by publication.
milling district the maximum actual production of which exceeds one million two
hundred thousand piculs.
We are not going to tarry long on these two points of jurisdiction. We are
sufficiently convinced that, by and large, Sections 1 and 7 of Republic Act 1267,
Complementing the above provision, Section 9 thereof provides for a 60/40
which created the Court of Agrarian Relations, providing that:
partition between the planters and laborers (60% for the laborers and 40% for
the planters) of any increase that the planters might obtain under the Act. (Sec. SEC. 1. Creation. For the enforcement of all laws and regulations governing
9 is quoted in the portion of the decision of the Court of Appeals to be quoted
the relation of capital and labor on all agricultural lands under any system of
on pages 25 and 26 hereof.)
cultivation, there is hereby created a court of Agrarian Relations, which shall be
under the executive supervision of the Department of Justice.
In the wake of such legislation, litigations were started questioning the
constitutionality thereof, and among such cases was Talisay- Silay which, as
xxx
xxx
xxx
already stated, We have already decided. To reiterate, in that case, We did not
only uphold the statute's validity, We also held that the Act was not intended to SEC. 7. Jurisdiction of the Court. - The Court shall have original and exclusive
deprive the mills and the planters of the right to divide the proceeds of the
jurisdiction over the entire Philippines, to consider and investigate, decide and
milled sugarcane in each district in the proportion they might agree on, without settle all questions, matters, controversies, or disputes involving all those
regard to the ratios specified in Section 1 of the Act, provided that any increase relationships established by law which determine the varying rights of those
that the planters might be given, as expected in consequence of the implicit
persons in the cultivation and use of agricultural land where one of the parties
compulsion of the law, has to be shared by them with their respective laborers works the land; Provided, however, that cases pending in the Court of Industrial
in their plantations, whether owned or leased by them, in the proportion of 60% Relations upon approval of the Act which are within the jurisdiction of the Court
for said laborers and 40% only for them. Nothing in the pleadings and the briefs of Agrarian Relations, shall be transferred to, and the proceedings therein
of the parties in the instant cases persuades Us to rule otherwise. In fact, at the continued in, the latter court.
request of the FEDERATION, We already had occasion to go over the main

and which was the law at the time of the filing of the FEDERATION's suit on
November 10, 1962, contemplated the transfer from the Court of Industrial
Relations, established under Commonwealth Act No. 3, to the Court of Agrarian
Relations of all controversies of whatever nature involving agricultural laborers,
particularly those referring to the employer-employee relationship with their
respective employers, which naturally include the sugar planters and their
plantation workers. (Santos vs. C.I.R., 3 SCRA 759.) Hence, it cannot be said that
the trial court, the Court of Agrarian Relations of Bacolod City, had no
jurisdiction to take cognizance of the vital petition that spawned the instant
cases before Us.

Those planters who are respondents in this case as well as planters which (sic)
are not duly represented by counsel, who are not present in court. (t.s.n. pp. 56)

We understand this manifestation to mean that Atty. Soto assumed

representation presumably with due authority of all the planters in the district.
In any event, the filing of the FEDERATION's petition must have been well known
or was of public knowledge in the Victorias milling district and We believe that
all the rest of the planters not here mentioned by name were as much
concerned as the latter and may be deemed to have felt that all of them would
V
eventually have the same fate. Besides, it is Our impression that the interests of
all the planters concerned cannot be better presented and defended than by
Also, considering the number of laborers involved herein, We hold that it cannot how the PLANTERS have done in these cases before Us now. In view whereof,
be seriously argued that the trial court erred in holding that the laborers and/or We consider it rather superfluous to cite any authorities for a holding, as We do
the FEDERATION had properly initiated their action as a class suit, it being a
hold, that the persons of all the planters in the Victorias Mill District had been
matter of common knowledge that "the subject matter of the controversy
properly placed within the jurisdiction of the trial court. (Aguilos vs. Sepulveda,
(herein) is one of common or general interest to persons - (so) numerous that it 53 SCRA 269.)
is impracticable to bring them all before the court," and after all, it appears that
"the parties actually before (the trial court were) sufficiently numerous and
Moreover, the issues of jurisdiction just discussed may be considered as
representative, so that all interests concerned (were) sufficiently protected."
resolved by the provisions of the law reorganizing the Courts of Agrarian
(Sec. 12, Rule 3.)
Relations, under which technical rules have hardly any force or applicability, and
considering that the acquisition of jurisdiction over the persons of defendants is
Anent the plaint of the PLANTERS that since not all the 422 individual planters
an adjective matter, this significant modification of the procedural rules in the
named respondents in the amended petition filed below were personally or by Court of Agrarian Relations from which these cases originated may be given
proper substitute form of service served with summons, the court did not
retroactive effect. (See Presidential Decree 946, Sec. 16.)
acquire jurisdiction over the persons of all the planters concerned, suffice it to
say that the record shows that at the hearing of December 14, 1967 in the court VI
below, there was the following clarification of the PLANTERS' appearance:
Coming now to the real meat of the problem before Us, which is the question of
Atty. SOTO:
how much money the laborers belonging to the FEDERATION should be paid by
the PLANTERS and/or VICTORIAS, corresponding to all the years from the
Attys. Sanicas and Soto appearing for Planters' Association.
passage of Republic Act 809 up to November 1974 (which is the year both
parties seemingly are agreed the factual premises of further controversy among
ATTY. SABIO
them came to an end due to shortage of production), it should be helpful for a
deeper insight into the issues between the parties to quote pertinent portions
Do I understand that Attys. Soto, Banzon and Associates represent the members of the decision of the Court of Appeals. According to said court:
of the Victorias Mill District Planters' Association, Inc.?
Section 9 of the Sugar Act provides as follows:
ATTY. SOTO:

SECTION 9.
In addition to the benefits granted by the Minimum Wage Law,
the proceeds of any increase in the participation granted the planters under this
Act and above their present share shall be divided between the planter and his
laborer in the plantation in the following proportion:

authority and capacity to intervene in the action; and that the action was not
proper for a class suit. It likewise filed a counterclaim for attorney's fees in the
amount of P 20,000.00, alleging that the action instituted against it was clearly
unfounded.

Sixty per centum of the increased participation for the laborers and forty per
centum for the planters. The distribution of the share corresponding to the
laborers shall be made under the supervision of the Department of Labor.

On their part, respondent Planters, in answers filed singly or in groups,

substantially echoed Central's defenses, adding, however, that should judgment
be rendered against them, they should be entitled to reimbursement from
Central.

The benefits granted to laborers in sugar plantations under this Act and in the
Minimum Wage Law shall not in any way be diminished by such labor contracts
known as "by the piece", "by the volume, "by the area", or by any other system
of "pakyaw", the Secretary of Labor being hereby authorized to issue the
necessary orders for the enforcement of this provision.

Assuming jurisdiction over the action, recognizing the personality of the

respondent Federation of Free Farmers, and considering the case as proper for a
class suit, the lower court, after hearing, relying principally on the interpretation
of Section 1 of Republic Act 809 that the law applies only in the absence of
written milling agreements, dismissed the petition, having found that written
The petition in the lower court alleged that, while pursuant to Section 9 of the
milling agreements do exist between respondent Central and respondent
Act. as above quoted, "respondents PLANTERS gave to petitioners LABORERS the Planters, the dispositive portion of the decision, dated December 14, 1970,
latter's participation in the sugar production as well as in the by-products and
reading as follows:
derivatives thereof and continued to give the same until November 1, 1955",
they "ceased to do so until the present ," (par. 10, petition). It likewise charged IN VIEW OF THE FOREGOING PREMISES, judgment is hereby rendered,
that 'with evident intent to evade compliance with said Act and to the grave
dismissing this case as it is hereby ordered DISMISSED, without pronouncement
prejudice of the laborers, some of the respondents PLANTERS and respondent
as to cost.
CENTRAL prepared and executed a General Collective Sugar Milling Contract
sometime in March, 1956', (par. 11, petition) the substance of which is
The matter now before this Court is the appeal taken by the petitioners from
discussed, supra. Appellants forthwith prayed for a judgment: declaring the
the decision referred to. Respondents Central and Planters did not interpose any
applicability to the Victorias Mill District of the sharing participation prescribed appeal
by the Act, starting with the 1955-1956 crop year; ordering Central and/or
Planters to pay Appellants' lawful share in the production beginning the crop
In their appeal, appellants ventilate twenty-eight assignments of error (pp. 67 to
year 1955- 1956, plus legal interests thereon; awarding exemplary damages in
77, Appellant's Brief). These, however, may be reduced to the following issues,
an amount that the Court may deem sufficient; and granting attorney's fees of
namely:
20% of whatever amount the Appellants might be entitled to.
First: Whether, as held by the lower court, the existence of written milling
Denying material allegations of the petition, respondent Central, in its answer,
agreements between Central and Planters (Exhibits XXX thru XXX-6; YYY thru
claims in substance that petitioners did not have any cause of action against it
YYY-7, and SSS thru SSS-28 and ZZZ thru ZZZ-7) renders inapplicable the
since it had existing written milling agreements with respondent Planters, and
operation of Republic Act 809;
Republic Act 809 is applicable only in the absence of written milling agreements.
As special defenses, it advanced the propositions that the lower court had no
Second: Whether, as appellants' claim these milling agreements have been
jurisdiction over the subject-matter of the action at the time of the filing thereof entered into in circumvention of Republic Act 809 and are, for that reason, void
prior to the effectivity of the Land Reform Code; that Republic Act 809 is
ab initio; and
unconstitutional; that appellant Federation of Free Farmers has no legal

Third; Whether, Central and Planters misappropriated money belonging to

appellants amounting to million of pesos.
We find substantial merit in the appeal. On the basis of the historical facts
bearing upon the case, we find the decision of the lower court in error.
For, historically, the facts that triggered the enactment of Republic Act 809 and
the case at bar are as follows:
In 1918, 1919, and 1920, Central and Planters executed 30-year milling
agreements under which the former was to receive 40% and the latter 60% of
the proceeds of sugarcane produced and milled in the Victorias Mill District in
Negros Occidental. As early as the 1930's, however, agitations were already
made to increase the participation of the Planters. Planters sought to justify
their demands upon the claims that there was too great a disparity in profits in
favor of Central and that the increase was necessary to improve the condition of
their plantation laborers.
The situation in the sugar industry at the time was such that on February 23,
1938, President Manuel L. Quezon appointed Chief Justice Moran of the
Supreme Court as Special Investigator to study the 'alleged inequitable
distribution of sugar resulting from the milling of sugarcane between the
centrals and the plantations, with a view to ameliorating the condition of the
planters' laborers'. On April 30, 1939, Justice Moran, in his report, verified the
disparity and observed that unless the participation of the planters were
increased, they could not be made to ameliorate the condition of their
plantation laborers.

The years during World War Il may have momentarily stilled and agitations for
the increase, but during the Second Congress of the Republic the same were
resumed with vigor. Four bills were filed, three in the House and one in the
Senate, all entitled "An Act To Regulate the Relations between Planters and
Millers of Sugarcane". After a series of amendments, the Senate version (SB No.
138) was finally sent to President Quirino who, however, vetoed the same on
grounds, among others, "that the bill contains no provisions granting to the
laborers a share in the increased participation of the planters nor does it
expressly require the latter to improve the lot of their laborers".
On January 15, 1951, House Bill No. 1517 (which ultimately became Republic Act
No. 809) entitled 'An Act To Regulate the Relations Among Persons Engaged in
the Sugar Industry', was introduced to remedy the presidential objections to the
vetoed SB No. 138. The remedy introduced by HB No. 1517 was in the form of
its Section 10 (which was amended later to become Section 9 of Republic Act
809) providing, in essence, that 60% of any increase in participation granted to
planters under the Act 'above their present share' should go to their plantation
laborers.

In the meantime, Planters, on the one hand, and Central, on the other, were
locked in a tug-of-war, the former continuing the demand for increase, the
latter insisting in refusing to grant any. Meanwhile, a new element had entered
into the dimensions of the controversy: the Planters now contended that new
written milling agreements should be concluded because their 30-year contracts
with Central had already expired. Central countered with the argument that its
contracts were still in force although the 30-year period may already have run
out, because 6 years had to be excluded from the computation of the 30-year
period for the reason that during 4 of the 6 years, the mills were not in
Moran's investigations were followed up by similar ones conducted by the
operation because of the Japanese occupation, and during the last 2 years of the
National Sugar Board created by President Quezon under Executive Orders Nos. 6, the mills had to be reconstructed and rehabilitated so that the mills were not
157 and 168, and the Board's findings confirmed those of Justice Moran's
in operation either. As the conflict continued unresolved, with Central adamant
according to its report of August 2,1939.
in its position not to offer any increase in Planters' participation the expiration of
the preferential treatment of sugar in the American market was fast
On June 7, 1940, Commonwealth Act No. 567 took effect. Noting the great
approaching: beginning July 4, 1954, graduated customs duties were going to be
disparity in the proportion of benefits "being received from the industry by each taxed on Philippine sugar. There was therefore, in the language of Section 1 of
of its component elements", it declared it to be a 'national policy to obtain a re- the sugar bills deliberated on in Congress on May 9, 1950, a need 'to insure the
adjustment of the benefits derived from the sugar industry by the component
maximum utilization of the benefits of preferential treatment for the Philippine
elements thereof the mill the landowner, the planters of the sugarcane, and sugar in the American market for the few remaining years.
the laborers in the factory and the field.'

The need for increasing the planters' participation, the approaching expiry date
of the preferential treatment of Philippine sugar in the American market, the
impasse between Central and Planters despite the termination or near
termination of their 30- year written milling contracts, and the need for
Congress to step in and pass a sugar law, found expression in the 'Explanatory
Note' of House Bill No. 1517 introduced on January 15, 1951, thus:

livelihood for many millions of Filipinos but is also one of our most important
dollar producing industries. Our country can ill afford to waste time in longdrawn out disagreements and litigations between millers and planters with only
three more years of free American trade under the terms of the PhilippineTrade
Act of 1946.

The present bill seeks to avoid fatal controversies in the sugar industry by
The necessity for increasing the share of the planters and the laborers in the
determining the respective share of millers and sugar cane planters in the
income derived from the sugar industry for its stabilization is not a new question absence of milling agreements, on the pattern set by the Rice Share Tenancy
but an admitted fact even before the outbreak of World War II.
Act, the constitutionality of which has been already upheld and on the basis of
the declarations of emergency and national interest made in Act No. 4166.
On February 23, 1938, President Quezon appointed Justice Manuel V. Moran to Commonwealth Act No. 567, and Republic Act No. 279.
make a study of the distribution of sugar resulting from the milling of sugarcane
between the centrals and the planters with a view to ameliorating the condition This bill is also in harmony with the recommendation of the Bell Report for the
of the planters "laborers", and after an exhaustive investigation covering several improvement of the living condition of the laboring class by providing higher
months, Justice Moran filed his report on April 30, 1939, recommending the
wages therefor. This bill does not violate existing milling agreements between
increase in the participation of sugar planters, even in violation of existing
planters and millers of sugar-cane as its provisions are only applicable in the
milling contracts, contending that such a law is constitutional as a valid exercise absence of such milling contracts.'
of the police power of the state. The National Sugar Board created by Executive
Orders Nos. 157 and 168, which made another investigation of the sugar
Notwithstanding the facts faithfully reflected in the aforequoted 'Explanatory
industry, in its report to the President of the Philippines on August 2, 1939,
Note' to HB 1517, Central and Planters still had not entered into new written
confirmed practically the findings of Justice Moran.
milling contracts, and there were no prospects that such contracts would soon
be entered into. In fact, on June 16, 1952, Planters went to court in Civil Case
Five crop years after liberation find the Philippine sugar industry still behind its
No. 16815 filed with the Manila Court of First Instance praying that a judgment
production allotment. In the meantime, only three more years of preferential
be rendered declaring their 30-year written milling agreements with Central
treatment in the American market remain.
terminated.
Serious as the situation is, it is further aggravated by the fact that a determined
struggle continues between millers and planters. Most of the milling contracts
are due to expire next year, if they have not already done so. Recently, a serious
crisis faced the industry when planters of the Victorias-Manapla district with a
quota of 1,711,235.11 piculs declared a sit-down strike, refusing to mill their
canes due to the obstinate refusal of the central to discuss terms for a new
milling contract. It is feared that with this antecedent, the disagreement
between the millers and planters will lead to more serious disruption of the
industry and ultimately to a complete paralization of production. The dispute as
to the ownership of the sugar quota has already reached our Courts.

Under this air of extreme uncertainty and necessity, Congress approved HB

1517 to become law as Republic Act 809 on June 22, 1952.

It is therefore believed that national interest requires that Congress should take
immediate steps to save or promote an industry, which is not only a source of

On July 1, 1952, however, Central replied to Planters (Exhibit N-14):

Under this law, Planters claimed, the Victorias Mill District fell in the category of
districts producing, 1,200,000 piculs or more. By prescription of its Section 1,
Central would have a share of 30% and Planters, 70%. Since, before June 22,
1952, Planters had a participation of only 60% while Central had 40% , and since,
under their contention, their 30-year milling contracts had already expired.
Planters demanded that Central, pursuant to the new law, give them an increase
equivalent to 10% over their previous 60% participation.

We refer to your letter of June 25, 1952.

We reiterate our opinion that our milling contracts have not yet expired, and
that we are under no obligation to deliver to the planters the increased
participation of 70% provided in the Sugar Act of 1952.
On the other hand, there is pending in the Court of First Instance of Manila
(Case No. 16815), the action instituted by you against our Company for a
declaratory judgment as to whether or not our milling contracts have already
expired.
In view of the foregoing, we suggest matters be held in abeyance until final
judgment is rendered in the said case No. 16815.
Notwithstanding this reply, Central beginning June 22, 19,52. set aside a
"reserve" of 10% as a precautionary measure to take care of Planters' demand
just in case it had to glue that 10% increase. Central, however, did not actually
give it to. Planters; it merely set it aside for future disposition, "because",
explained Central's treasurer-comptroller, "apparently there was no milling
contract at that time and the company was afraid to incur liability under
Republic Act 809 and therefore the company set aside every year 10%" (tsn.,
August 14, 1969, p. 6).

On March 5, 1956, Central and Planters executed the controversial 'Amicable

Settlement-Compromise Agreement' (Exhibits XXX thru XXX-6).
On April 23, 1956, Central and Planters filed a manifestation (Exhibit Y) to the
effect that they had already compromised and settled their differences, but that
the execution by the majority of Planters of their new individual sugar milling
contracts had not yet been completed, and that as soon as this was done,
Central would ask for the dismissal of Civil Case No. 22577.
On May 2, 1956, three persons, planters themselves (the spouses Jose V. Corua
and Jesusa Rodriquez, and Felipe L. Lacson), filed a "Motion for Intervention"
(Exhibits Z thru Z-19) in which they attacked the "Amicable SettlementCompromise Agreement" (referred to hereafter as ASCA for convenience), as a
circumvention and violation of Republic Act 809 because it eliminates the share
of the laborers, from November 1, 1955 to October 31, 1974.

On May 5, 1956, the Secretary of Labor filed a manifestation (Exhibits AA thru

AA-1) adopting the allegations of the three planters' motion for intervention,
and assailing the ASCA as being contrary to law because it totally deprives the
plantation laborers of the benefits granted them by Republic Act 809 for the
period commencing November 1, 1955 up to the end of the 1973-1974 crop
milling season, and because, with respect to the period from June 22, 1952 to
October 31, 1955, their share is not being disposed of in accordance with the
On April 19, 1954, Central filed an action (Exhibits H to H- 12) against Planters in provisions of republic A ct 809.
Civil Case No. 22577 asking the Manila Court of First Instance to declare
Republic Act 809 unconstitutional.
On May 28, 1956, another group of 6 laborers filed a motion (Exhibits BB thru
BB-17) with the court, likewise attacking the ASCA as a 'device by which the
In the meantime, on March 19, 1953, the Manila Court of First Instance, in Civil petitioner and a majority of the planters seek to circumvent the provisions of
Case No. 16815 brought by Planters (Exhibits F thru F-22) decided that the 30the Sugar Act of 1952, and conniving and confabulating together thereby
year milling contracts had indeed expired in 1951, at the latest, or before June
denying to labor its just rights granted them by the said law'.
22, 1952. On appeal, this decision was affirmed by the Supreme Court in G. R.
No. L- 6648 dated July 25, 1955 (Exhibits G-1 thru G-6).
On June 4, 1956, almost three months to the day from the execution of the
ASCA on March 5, 1956, Central filed with the court, in Civil Case No. 22577, a
On December 14, 1955, some 20 months after filing Civil Case No. 22577,
'Petition for Provisional Dismissal' (Exhibit FF-2).
Central filed a motion (Exhibit U) alleging that negotiations were in progress for
the amicable settlement of its differences with Planters. On February 25, 1956, On June 8, 1956, the 3 planters earlier referred to file an opposition (Exhibits II
similar motions (Exhibit V) were filed by both Central and Planters manifesting
thru II-3) to the petition for provisional dismissal.
to the court that such negotiations were going on and that there was probability
that they would reach an amicable settlement.
On the same date, June 8, 1956, the Secretary of Labor filed a similar opposition
(Exhibits JJ thru JJ-10), assailing the ASCA sharing of the sugar between Planters

and Central at 64% and 36%, respectively, with nothing going to the plantation
laborers, as being contrary to Section 1 of Republic Act 809 which had increased
Planters' participation from 60% to 70%, representing an increase of 10% and to
Section 9 of the Act which grants the plantation laborers a participation of 60%
of such 10% increase.

Province of Negros Occidental, and duly authorized to execute this document by

the sugarcane planters affiliated with the COMPANY, (hereinafter referred to as
the 'PLANTERS') as Party of the Second Part;

On June 22, 1956, the Manila Court of First Instance denied the motions for
intervention and dismissed Civil Case No. 22577, without prejudice, from which
denial and dismissal (Exhibits KK thru KK-6) the Secretary of Labor, the three
planters, and the six laborers referred to above, took an appeal to the Supreme
Court. In G. R. No. L-11218 (Exhibit UU-1) the Supreme Court dismissed the
appeal on November 5, 1956.

WHEREAS, long before the war in 1941 the COMPANY and NORTH NEGROS
SUGAR CO., INC., (a domestic corporation, domiciled in the City of Manila,
whose obligations were assumed by the COMPANY) and several sugarcane
planters in Manapla, Cadiz and Victorias, Negros Occidental, entered into, and
executed, sugar milling contracts which have already expired;

WITNESSETH: That

WHEREAS, on June 22,1952, Republic Act 809 was passed;

As is readily evident from the foregoing recital of facts, the major bone of
contention between the appellants, on the one hand, and the appellees, on the
other, consists in the "Amicable Settlement-Compromise Agreement" (Exhibits
XXX thru XXX-6, hereafter referred to as the ASCA for convenience) executed on
March 5, 1956 by Central, on the one hand, and Planters, on the other, and
reproduced in substance in the "General Collective Sugar Milling Contract"
(Exhibits YYY thru YYY-7) and the 'Individual Sugar Milling Contracts' (Exhibits SSS
thru SSS-28 and ZZZ thru ZZZ-7). For a deeper insight into the conflicts that
divide the parties to this case, the ASCA is hereunder reproduced in full as
follows:

WHEREAS, prior to June 22, 1952, the sugar manufactured by the Party of the
First Part from the sugarcane delivered to it by the planters affiliated with the
COMPANY was divided between the COMPANY and the PLANTERS on a 40-60
basis, respectively, pursuant to the aforementioned sugar milling contracts;

AMICABLE SETTLEMENT-COMPROMISE

WHEREAS, after the passage of said Republic Act 809 the PLANTERS made a
demand on the COMPANY for a division of the sugar and by-products
manufactured by the COMPANY from the sugarcane delivered to it by the
PLANTERS from and after said date, June 22, 1952, on a basis of 70-30, for the
PLANTERS and the COMPANY, respectively, under the provisions of said
Republic Act 809;

AGREEMENT

WHEREAS, the COMPANY denied said demand made by the PLANTERS;

This document, executed by

WHEREAS, the COMPANY has heretofore filed a petition in the Court of first
Instance of Manila for a declaratory judgment declaring Republic Act 809
VICTORIAS MILLING COMPANY, INC., a corporation organized and existing under unconstitutional and invalid, and for other relief, which petition was opposed by
the laws of the Philippines, and domiciled in the City of Manila (hereinafter
the PLANTERS
referred to as the 'COMPANY') represented herein by its President, Carlos L.
Locsin, of age, Philippine citizen, married, and resident of the Province of Negros WHEREAS pending the determination of the action or petition aboveOccidental. as Party of the First Part.
mentioned, the COMPANY, as an accounting precautionary measure, has, since
the enactment of Republic Act 809, annually set aside a reserve corresponding
-andto the disputed TEN PERCENT (10%) increase in participation demanded by the
planters under said Republic Act 809;
VICENTE F. GUSTILO, JESUS SUAREZ, SIMON DE PAULA, FERNANDO J. GONZAGA
and JOSE GASTON, of age, Philippine citizens, married, and residents of the

WHEREAS , the COMPANY and the PLANTERS desire to avoid a prolonged

litigation and amicably settle and compromise their differences, and enter into,
and execute new sugar milling contracts
WHEREAS, a "Special Committee" herein accepted and recognized by the Party
of the First part, has been created by the PLANTERS for the purpose of
effectuating the present amicable settlement and compromise, which 'Special
Committee' is composed of the five (5) sugarcane planters hereinabove
mentioned, executing this agreement as "Party of the Second Part",
NOW, THEREFORE, the COMPANY and the PLANTERS affiliated with it, the latter
being represented herein by the Party of the Second Part, hereby agree to
amicably settle and compromise, and do hereby amicably settle and
compromise, all their differences, as follows:
(l)
The PLANTERS shall execute the "General Collective Sugar Milling
Contract" as well as supplemental new individual sugar milling contracts,
effective November 1, 1955, the sugar and by-products manufactured by the
COMPANY from the sugarcane delivered to it by the PLANTERS to be divided
between them, SIXTY-FOUR PER CENT (64%) for the PLANTERS and THIRTY SIX
PER CENT (36%) for the COMPANY;

(a)
The Party of the Second Part shall set aside Sixty Per Cent (60%) of the
said sum of P8,643,472-24 as received by them to be held in trust for the
benefit of their laborers that may be entitled thereto because some of them
have already died and their heirs are unknown while a great number of them
are hard to locate and Identify, the Party of the Second Part, shall dispose of the
said Sixty Per Cent (60%) of the sum of P8,643,472,24 as received by them as
follows:
(b)
The Party of the Second Part shall invest P4,000,000.00 of the
P5,186,083.34, w``hich is Sixty Per Cent (60%) of the said sum of P8,643,472.24,
in 40,000 voting and transferable shares of capital stock of the COMPANY of the
par value of P 100.00 per share which shall be issued in four (4) blocks of 10,000
shares per block by the COMPANY to the Party of the Second Part upon
effectivity, of this agreement as provided in Clause (2) hereof, it being
understood that the issuance of such shares does not involve an increase in the
present authorized capitalization of the COMPANY.

The above-mentioned 40,000 shares of the capital stock of the COMPANY will
enable the laborers/planters to become part owners of the COMPANY but if
within the period of eighteen (18) months, but not earlier than six (6) months,
from and after date of delivery of the said 40,000 shares by the COMPANY to
the Party of the Second Part, the Party of the Second Part should desire to have
As to the sugar and molasses manufactured by the COMPANY from June 22,
the value of the said 40,000 shares to wit, P4,000,000 00, or such portions
1952 (the date of the passage of Republic Act 809), to October 31, 1955, (the
thereof in blocks of 10,000 shares at P1,000,000.00 per block, paid in cash, the
end of the COMPANY's fiscal year), the COMPANY suggested to divide the same COMPANY will pay in cash to the Party of the Second Part or its successors the
on a 65-35 basis, SIXTY-FIVE PER CENT (65%) for the PLANTERS and THIRTY- FIVE said value of the said 4O,000 shares or of such blocks of 10,000 shares per
PER CENT (35%) for the COMPANY, as part of a 65-35 milling contract to begin
block, as the Party of the Second Part may decide to have converted into cash as
June 16, 1952, and to end with the 1973-1974 crop milling year, on the same
to such blocks of 10,000 shares per block, that the Party of the Second Part may
basis of participation. But as the COMPANY and the PLANTERS failed to reach an retain such shares may be retained by the PLANTERS for their own account upon
agreement thereon the COMPANY agrees to reduce its share or participation to their payment to the Party of the Second Part or its successors of the value
30, in favor of the PLANTERS, for the said period of June 22, 1952-October 31,
thereof of P l,000,000.00 per block. The COMPANY shall have a period of Thirty
1955, and the PLANTERS, in turn agree to reduce their share or participation to (30) days after receipt of written request of the Party of the Second Part within
64, in favor of the COMPANY, for the period commencing November 1, 1955, to which to make such cash payment of the value of the shares.
the end of the 1973-1974 crop milling season, that is, October 31, 1974, and the
COMPANY, upon all the PLANTERS affiliated with it executing their new
The balance of P l,186,083.34 shall be distributed under the supervision of the
individual milling contracts shall pay them the total value of the reserve referred Secretary of Labor among the present laborers of the party of the Second Part
to in the seventh "WHEREAS' clause now amounting to P 8,643,472.24, as
who were already laborers of the PLANTERS during the period comprised
follows:
between June 22, 1952 (the date of the passage of Republic Act 809) and
October 31, 1955 (the end of the COMPANY's fiscal year);

(ii) As to the sum of P 3,457,388.90, which is the Forty Per Cent (40%) of the
P8,643,472.24, the Party of the Second Part shall distribute this amount among
the PLANTERS in proportion to the sugar milled for them by the COMPANY
during the aforementioned period of June 22, 1952, to October 31. 1955.
(b)
As to the manner of delivery of the cash involved in the foregoing
transaction amounting to P 4,643,472.24, a "General Collective Sugar Milling
Contract" has heretofore been prepared for the signature of the PLANTERS
affiliated with the COMPANY signing the said "General Collective Sugar Milling
Contract", the COMPANY shall pay and deliver to the Party of the Second Part at
least fifty per cent (50%) of the said cash balance of P4,643,472.24 or that
portion thereof corresponding to the said majority of the PLANTERS affiliated
with the COMPANY who have already signed the said "General Collective Sugar
Milling Contract", and the remaining fifty per cent (50%) or remainder thereof
will be paid, one half upon the execution of their new individual sugar milling
contracts, and the other half upon the registration thereof in the Office of the
Register of Deeds for the Province of Negros Occidental;
(c)
It is understood, as part of this settlement agreement, that the block of
the COMPANY's common shares mentioned in sub- paragraph (i) and all its
earnings shall constitute a trust fund to be dedicated to the amelioration of the
plantation laborers of the PLANTERS in the Victorias-Manapla-Cadiz milling
district Said trust fund shall be administered by the Party of the Second Part for
the benefit of the PLANTERS' laborers under the supervision of the Secretary of
Labor and in accordance with the trust laws of the Philippines. Should the trust
fund be liquidated by order of the Court of justice or in the manner provided for
in paragraph (1) (a) (i) then the PLANTERS shall have the first option from the
trustees, and the COMPANY the second option from the trustees and or from
the planters themselves to buy said Victorias Milling Co., Inc, shares in blocks of
10,000 shares at their value of P 1,000,000.00 per block. And in case both the
Party of the First Part and Party of the Second Part refuse to exercise their right,
then said block of VMC shares may be sold in. the open market'
(2)
This agreement will become effective if and when the majority of the
planters affiliated with the Party of the First Part have signed the said "General
Collective Sugar Milling Contract".
Executed at Victorias, Negros Occidental, this 5th day of March, 1957.
VICTORIAS MILLING CO., INC.

By:
(Sgd.) CARLOS L. LOCSIN
CARLOS L. LOCSIN
President
(Party of the First Part)
(Sgd.) VICENTE F. GUSTILO
VICENTE F. GUSTILO
(Sgd.) JESUSSUAREZ
JESUS SUAREZ
(Sgd.) SIMON DE PAULA
SIMON DE PAULA
(Sgd.) FERNANDO J. GONZAGA
FERNANDO J. GONZAGA
(Sgd.) JOSE GASTON
JOSE GASTON
(Party of Second Part)
(Decision of CA, pp. 177-198, Rollo of L-41161)
VII
Before proceeding any further, and in order to place in proper perspective the
matters covered by the numerous assignment of errors presented by the parties
for Our resolution, We believe We must underscore at this point that as may be
readily noted in the portion of the decision under review We have just quoted,
the Court of Appeals summed up the allegations of the petition (and presumably
the amended one) filed with the trial court and stated unqualifiedly the
premises that, per its own petition the Federation admitted that the laborers'
share in the 1952-53 to 1954-55, the PLANTERS gave to petitioners LABORERS
the latters' participation in the sugar production as well as in the by-products
and' derivatives thereof and continued to give the same until November 1,
1955, etc. (Italics Ours) Then the Court proceeded to state the defense of the
defendants PLANTERS and CENTRAL or VICTORIAS. And after quoting the

dispositive portion of the trial court's judgment, the Court went on to say that
appellants (meaning the laborers represented by the FEDERATION) ventilate
twenty-eight assignment of errors giving rise, in that Court's view to the three
issues it enumerated. (supra) The point We want to clarify as early as at this
juncture is that it is at once evident that technically, the second and third issues
referred to cannot be deemed to contemplate any question beyond those raised
in the petition, namely, the non-payment of the laborers' share in the proceeds
of production after November 1, 1955. Whatever, therefore, might have been
covered by the FEDERATION's twenty eight assignment of errors in respect to
matters before November 1, 1955 were obviously new matter, and could be
resolved by the Appellate Court only if evidence thereon were received by the
trial court without objection of the adverse parties seasonably as if the same
were tried with by agreement of all the parties.

with only during periods when millers and planters are bound by no written
milling agreements, and need not govern the sharing system of the contracting
parties who have entered into such agreements.

That this is the real intendment of the law can hardly be shrouded in doubt. For
the law is not merely social in that it means to uplift the wretched condition of
the laborers in the country's sugarcane plantations; it is also economic in that
the law is calculated to safeguard, preserve, and maintain the integrity, viability,
and health of an industry so vital to the entire economy of the country. When
the sugar bill (which ultimately became Republic Act 809) was being debated in
Congress in 1950, 1951, and 1952, one of the urgent reasons advanced by its
sponsors in pleading for the expeditious passage of the measure was the fact
that in a year or so the preferential treatment of Philippine sugar in the
American market was expiring, and it was imperative that the situation in the
We have to make this early elucidation and setting of the proper perspective of sugar industry be stabilized as quickly as possible by the passage of the bill in
the issues, because, as will be seen later, one of the decisive considerations We order to take advantage of the remaining few years of such preferential
will dwell on will be whether or not the Appellate Court legally acquired
treatment. The provisions of the law authorizing the take-over by the
authority to act on said new matter and/or whether or not it resolved the issues government of centrals which refuse to mill or of plantations which neglect to
of fact and law relative thereto in accordance with the evidence and the law.
plant, indicate the concern of the industry to the over-all posture of the national
Hereunder is how the Court of Appeals resolved the three issues that it held
economy. The respective participations of the millers and the planters cannot,
came out from the assignment of errors of appellant Federation.
therefore, be regulated, at all times, by the same proportions established in
Section I of the law. On the contrary, such participations should be understood
VII
as subordinated, at all times, to the superior interests of the industry as a whole.
No one, least of all the very people involved in the industry - millers, planters,
The appellate court resolved the three issues it enumerated as follows:
and laborers - has a right, so to speak, "to kill the goose that lay the golden
eggs." Particularly when production costs are so high and sales are so low,
Regarding the first issue, the Court held:
sacrifice on the part of everyone is in order. In such cases, millers and planters
should be able to adjust their respective participations in response to the
We agree that millers and planters may indeed enter into written milling
economic realities obtaining in the industry, that is, stipulate in their written
agreements stipulating participations different from those prescribed in Section milling agreements participations lower or higher than those prescribed in
1 of the Sugar Act. This conclusion is justified by the language of Section I itself
Section 1 of the law.
which declares that Fears may be expressed, as a result of the conclusion we have reached, that
In the absence of written milling agreements between the majority of the
millers and planters may be thrown back into the same situation that the Sugar
planters and the millers of sugarcane in any milling district in the Philippines, the Act was passed to remedy that is, a situation where the weak planters would be
unrefined sugar produced in that district . . . . shall be divided between them.
continually demanding an increase in their participation and the strong millers
would persist in refusing to grant the increase, the same stalemate, in the same
in the proportions established therein. The phrase "in the absence of clearly"
impasse that characterized the relations between Central and Planters before
indicates that the division of the sugar between the millers and the planters in
the Act became law and which, in fact, precipitated the enactment of the law in
accordance with the schedule of participations mentioned, has to be complied
1952. Such fears, however, may not be seriously entertained. A continuing

period of no contract would result in a definite disadvantage to the centrals.

Section 1 provides summary increases dictated by Section I would continue to
accrue in favor of the planters. For reasons of sheer self-interest, therefore, the
centrals would thus be compelled to negotiate written contracts with the
planters.

Regulations to implement Section 9 of Republic Act 809 (Exhibit GGG), dated

February 23, 1956, as amended on May 4,1956, providing:

SECTION 1.
The benefits granted to laborers under the Act shall apply to all
laborers of sugar plantations in any milling district wherein the planters'
sharehas increased in accordance with the schedule of participations
In such a situation, the planters, understandably would not be in too great
established in Section 1 of said Act, due either to the absence or expiration of
hurry. If, however, they must write new contracts with the millers, there is
written milling agreements between the majority of the planters and their
hardly any doubt that, after enjoying the increases as decreed in Section I of the respective millers or under subsequent milling agreements executed after the
law in the absence of written milling agreements they would not yield to less in date of effectivity of the Act.
negotiating new milling agreements with the millers. Proof of this is the fact, in
the instant case, that Planters, enjoying a 4% increase in their participation by
It is clear from the foregoing provisions of the "Rules and Regulations", that the
virtue of Section 1 when they had no milling agreements with Central, did not
benefits to which the plantation laborers are entitled refer to the increases in
settle for less when they finally executed the ASCA with Central on March 5,
planters' participation granted either under Section 1 of the law (in the absence
1956.
of written milling agreements on the date said law became effective, June 22,
1952) or under any subsequent contracts executed after the date of effectivity
But we disagree with appellees when they assert that plantation laborers have
of the said Act.
no right to any share in any increase in planters' participation where such
increase is granted not "under this Act " (a phrase used in Section 9 of the law)
It is likewise clear that such increase is the difference determined, as basis,
but by contract, as in the case of the ASCA of March 5, 1956. The argument
either on the lower participation of the planter under the last milling contract
loses sight of the fact that the Sugar Act of 1952 is, by and large, a piece of social expired immediately prior to June 22, 1952, or on the lower participation of the
legislation intended to grant increases in the planters' participation for the
planter under a milling contract which, although subsisting on that date, expired
primary purpose of enabling the planters to improve the lot of their plantation
immediately thereafter, in relation either to the higher participation of the
laborers. Thus, in 1938, when President Manuel L. Quezon appointed Chief
planter under Section 1 of the law (in the absence of a milling contract) or to the
Justice Moran to study the "alleged inequitable distribution of sugar resulting
higher participation of the planter under a milling agreement executed
from the milling of Sugarcane between the centrals and the plantation", the
subsequent to June 22, 1952. Thus, provides the 'Rules and Regulations study was undertaken with a view to "ameliorating the condition of the
planters" laborers. When Justice Moran finally submitted his report on April 30, Increase in participation shall mean the difference between the participation of
1939, he came up with the conclusion that unless the participation of the
the planters under Section 1 of the Act or the participation of the planters in any
planters was increased, they could not be made to 'ameliorate the condition of milling agreement subsequent to the effectivity of the Act, and the participation
their plantation laborers.
of said planters under the milling contract subsisting at the date of the
effectivity of the Act, or in the absence thereof, under the last milling contract
The Court then went into an extended discussion of practically the same
immediately prior to the enactment of said Act.'
considerations discussed by Us in Talisay-Silay, hence We will not quote them
anymore. As We did in Talisay-Silay, the Court concluded:
Consequently, we hold that, since, as the facts of this case show, under their
milling contracts which expired before June 22, 1952, Planters had a
In keeping with this spirit, the Department of Labor has made a correct
participation of 60%, while Central had 40%, and since, under the ASCA
interpretation of the scope and extent of the applicability of Republic Act 809 in executed between them on March 5, 1956, but made retroactive to November
respect to the benefits of plantation laborers, in issuing the 'Rules and
1, 1955, Planters have a participation of 64% while Central has 36%, with such
participations to run and remain in force until October 31, 1974, Planters enjoy

a 4% increase in participation under the said ASCA. Pursuant to Section 9 of

Republic Act 809, the plantation laborers, or appellants herein, are entitled to a
share of 60% of such 4% increase during the entire period of the 19-year term of
the ASCA.

In their twelfth assignment of error (appellants' brief, pp. 265-278), appellants

argue that while appellees are free to enter into written milling agreements
subsequent to June 22, 1952, the intent of Republic Act 809 is that the
provisions of such agreements 'must be without prejudice to the sharing
arrangement laid down in Sections I and 9 of the law. In support of this position,
In the light of all the foregoing, we hold, in disposing of the first issue herein
they cite the proceedings on the deliberations of the Senate on House Bill No.
discussed, that the existence of milling agreements does not necessarily render 1517 (which ultimately became Republic Act 809) particularly on what became
Republic Act 809 inapplicable or inoperative as to the contracting parties but the Section 5 of the law. In their sixteenth assignment of error (appellants' brief, pp.
Act remains applicable and operative in all cases where the milling agreements, 292-306), appellants charge that the motive of the appellees in executing the
executed subsequent to June 22, 1952, provide any increase in planters'
milling agreements is 'to have a pretext for evading and circumventing Sections
participation, as the term 'increase in participation 'is defined herein.
1 and 9 of Republic 809 and thereby to be able to appropriate with impunity the
six (6%) per cent share' of appellants in the unrefined sugar and its derivatives.
Accordingly, the ASCA and the other derivative sugar milling contracts are
hereby declared modified so as to be caused to be read thereinto a provision
We have gone over the arguments of appellants in both assignments of error
granting the plantation laborers, or the appellants herein, 60% of the 4%
but found no evidence of circumvention as appellants have charged. Under their
increase in planters' participation stipulated therein, commencing from
twelfth assignment of error, it is true that Senator Zulueta introduced an
November 1, 1955 to October 31, 1974. They should likewise be entitled to legal amendment so as to subject the schedule of participations under Section 1 of
interest for the same period.
the law to decisions by a proposed Board of Arbitration to be appointed by the
President of the Philippines 'in the event that any central, shall be unable to
As already stated earlier in this opinion, the above ruling of the Court of Appeals arrive at a milling agreement with a majority of the planters affiliated with it,
conforms with Our decision in Talisay-Silay ,which We here reaffirm for the
and shall refuse to mill the sugar cane of such planters in the absence of such
purposes of these cases, no new and cogent reasons having been advanced by
agreement', and that this amendment was voted down on the ground, strongly
the FEDERATION to convince Us to alter Our view. As We have earlier indicated, advocated by Senator Taada, that since the bill already fixed the ratio of
in the latest motions filed by it for early resolution of these cases, it is quite
participation between the millers and the planters, it would be wrong to 'open it
apparent that the FEDERATION is more or less resigned to accept Our Talisayto further inquiry or arbitration.'
Silay rulings.
Senator Taada was correct in taking such position. There was no point to
- VIII creating a Board of Arbitration to determine the participations of the millers and
the planters which the bill under discussion had already fixed as a congressional
Anent the second issue, the Court discoursed thus:
determination of the matter. But no inference may be drawn from Senator
Taada's position that the sharing proportions established under Section 1 of
We shall now take up the second issue under which appellants claim that the
the law may not be deviated from in contracts executed subsequent to the
ASCA of March 5, 1956 (Exhibits XXX thru XXX-6), and derivative contracts, the
passage of the law on June 22, 1952. Appellees are correct in their view that
'General Collective Sugar Milling Contract' (Exhibits YYY thru YYY-7) and the
indeed if it were the intention of Congress for the millers and planters to
'Individual Sugar Milling Contract' (Exhibits SSS thru SSS-28 and ZZZ thru ZZZ-7)
observe no other sharing arrangements than those established under Section 1,
executed by Central, on the one hand, and Planters, on the other, have been
there would be little point, if at all, entering into any written milling agreements
entered into in circumvention of Republic Act 809 and are, for that reason, void which cannot stipulate other proportions in the sharing arrangements than
ab initio.
those prescribed under Section 1. In our resolution of the first issue, we
adverted to the fact that Republic Act 809, although not a revenue-raising
measure, is, in addition to being social, also an economic piece of legislation. It

bears repeating in connection with the issue at hand that Congress could not
have intended, by Section 1, to prevent the millers and planters from agreeing
to other sharing proportions, even at the cost of the preservation of the sugar
industry. We do not believe we need say more.

production, this being the amount of increase which the Planters had demanded
as due to them under Section 1 of the law. Although Central still insisted, even
after the passage of the law on June 22, 1952, that its 30-year milling contracts
with Planters had not yet expired because of its belief that 4 years of Japanese
occupation and 2 years of rehabilitation of the mills during which the mills were
Under their sixteenth assignment of error, appellants cite the various acts of
not in operation should be deducted from the 30- year periods of the contracts,
Central in resorting to maneuvers to get Planters to execute the ASCA of March it set aside this 'reserve' just in case it was finally decided by the courts before
5, 1956, and the other derivative sugar milling agreements. Appellants are of the which the issue had been brought by the planters, that its 30-year contracts had
view that they are entitled to 6% of the sugar proceeds effective June 22, 1952 indeed expired as of the date of effectivity of the law. As of October 31, 1955,
without contract, as under Section 1 of the law, or with contract, as under the
this 'reserve' had accumulated to P 8,643,472.24. Central's suggestion was that
ASCA, and that the maneuvers of Central in offering Planters 64%, provided
this amount of 'reserve' built up during the period from June 22, 1952, to
Central got 36%, which the latter finally succeeded in getting the former to
October 31, 1955, be divided between Planters and the plantation laborers on
agree to under the ASCA, constitute a circumvention of the law.
the proportion of 40% for the former and 60% for the latter, the same
proportions prescribed by Section 9 of republic Act 809. With 40% of the
Central's tactics may not be exactly moral, but they are standard operating
'reserve, Planters would stand to get P 3,457,388.90, while the plantation
procedure of businesses - using every possible leverage and device to bring
laborers, with 60% would have P 5,186,083.34. These participations in the
about the best bargain under given circumstances -- for profit. The contracts,
'reserve of 40% for Planters and 60% for the plantation laborers in the 'reserve',
therefore, which it wrung from Planters are not in circumvention of the law but would be equivalent to participations of 4% and 6%, respectively, in the total
in legitimate pursuit of profit -- which is the end all and be-all of business. That
annual production within the period from June 22, 1952 to October 31, 1955,
Central, as a result of the ASCA which appellants claim it (Central) to have
Planters' total participation for the period, therefore, would be 64%.
'engineered', got 36% and Planters 64%, while the plantation laborers got
nothing, is no reason for considering the contract a circumvention of the law
Confronted by an acute need for money and these enticements dangled before
which does not in the first place impose upon it any duty or require of it the
them: 3,457,388.90 in cash (equivalent to 40% of their participation in the
performance of any obligation to yield any part of its participation in favor of
reserve or to 4% in the total annual production) for the period June 22, 1952 to
planters laborers. In other words, we do not find in Central's conduct in the
October 31, 1955, and a similar total participation of 64% for the next 19 years,
premises anything so odious or so obnoxious as to render the contracts it has
that is, from November 1, 1955 to October 31, 1974, coupled by the speculation
entered into with Planters illegal or repugnant to public policy. In the course of perhaps that their 4% increase for the 19 years could not be touched by the
negotiations, Central acted under the belief that if it succeeded in writing new
plantation laborers because of the argument that Republic Act 809 would no
written milling agreements, the agreements could stipulate other proportions in longer be applicable once written milling agreements were entered into,
the sharing system than those established under Section 1 of the law, since in its Planters found no better alternative than sign, as they did sign, on March 5,
view, the law would no longer be applicable the moment such agreements were 1956, the controversial ASCA and subsequently, the other agreements
entered into. There is evidence that Planters, on their part, at first recoiled from reproducing the provisions of the ASCA.
Central's suggestion that the latter was willing to increase the former's
participation from 60% to 64% provided Planters agreed to give 36% to Central That Planters might not have gotten the better end of the bargain since, under
for the duration of the contract. The sense of repulsion was understandable,
the ASCA the 6% that would go to their plantation laborers for the period from
since, under Central's suggestion, the 6% which the Planters' laborers were to
June 22, 1952 to October 31, 1.955, would go instead to Central for the next 19
enjoy from June 22, 1952 to October 31, 1955, would an go to Central during
years, from November 1, 1955 to October 31, 1974, is no evidence of
the next 19 years, from November 1, 1955 to October 31, 1974. But Planters
circumvention of Republic Act 809. As we have said in our resolution of the first
seemed to have little choice as Central appeared to have all the aces: from June issue, the millers and planters may stipulate in their written milling agreements
22, 1952, it had started setting aside a 'reserve' equivalent to 10% of the annual other sharing proportions than those prescribed in Section 1 of the law which

were so prescribed only in the absence or because of the absence of written

milling agreements. Central's drive, therefore, to get all the 6% for itself is a
perfectly legitimate one, not a circumvention
Again, fundamentally, the above position of the Court of Appeals is in accord
with Talisay-Silay, except for some apparent inconsistencies therein, to which
We will hereinunder address Ourselves regarding the conduct of VICTORIAS in
entering into the so-called ASCA. It is quite obvious that the Appellate Court
tried very hard to look for some way of making VICTORIAS somehow liable for
whatever might be due the laborers of the PLANTERS, notwithstanding its
categorical finding and holding that VICTORIAS did nothing more than to obtain
as legitimate a bargain as any sensible businessman or industrialist having an
eye for profit would do.

In the light of all the foregoing, we hold, in resolution of the second issue, that,
while we do not find appellees to have circumvented Republic Act 809 in
entering into the ASCA and in stipulating a participation of 64% for Planters and
36% for Central, and for this reason, declare the ASCA and the other derivative
sugar milling contracts valid, the appellees are jointly and severally liable for tort
in disposing, upon their own accord, and without any authority of the plantation
laborers, of the money of the said laborers in the total amount of
P5,186,083.34, and in thus causing the loss of shares of stock and their earnings
purchased out of the P 4,000,000.00 of such amount.
X

While, as We have said, We are in agreement with the Court of Appeals in its
construction and application of Sections 1 and 9 of Republic Act 809 as
discussed above, We cannot, as We will show anon, fully accept its conclusions
as to the pretended liability of the PLANTERS and VICTORIAS for the amount
that the FEDERATION claims the laborers of the PLANTERS have not been paid
as their share of the proceeds of the crop years 1952- 1953 to 1954-1955 as
well as those of the crop years 1956-1957 to 1973-1974. In passing upon, as We
have just quoted, the second issue formulated by it to resolve the appeal to it of
the Federation, it held the appellees, the PLANTERS (including Primo Santos and
After holding that the ASCA is legal and, what is more, not conceived to
Benjamin Tirol) and VICTORIAS "jointly and severally liable for tort in disposing,
circumvent the law, surprisingly, the Court went into a matter not alleged in the upon their own accord, and without any authority of the plantation laborers, of
petitions in the trial court. It proceeded to go into a disquisition of the effects of the money of the said laborers in the total amount of P 5,186,083.34 and thus
the provisions of the ASCA regarding the manner of paying the. share of the
Causing the loss of shares of stock and their earnings purchased out of P
laborers in the 10% increase of the PLANTERS' share from June 22, 1952 to
4,000,000.00 of such amount." Not only that, the Court of Appeals adjudged the
October 31, 1955. As will be noted in the earlier quoted provisions of the ASCA, PLANTERS and VICTORIAS also jointly and severally liable for the 2.4% share of
it was stipulated that the PLANTERS would be paid their: 10% increase, 60% of
the laborers in the proceeds, which they maintain they have not received, of the
which would pertain to the laborers, with the condition, however, that instead
crop years 1956-57 to 1973-74. Indeed, in the course of resolving the second
of the PLANTERS receiving the total share of the laborers in cash, only a portion issue and in disposing of the third issue, the Appellate Court found the
would be in cash and the balance of Four Million (P 4-M) Pesos would be in the PLANTERS and VICTORIAS guilty of misappropriation and conversion of
form of certificates of shares of stock to be issued to the PLANTERS, who formed P7,385,950.00 corresponding to the P4M worth of VICTORIAS shares of stock
a Special Committee or Board of Trustees for the purpose, expressly in trust for which under the ASCA was stipulated to be received by the PLANTERS in trust
the laborers. The Court condemned such provisions as entirely beyond the
for the laborers.
authority of the PLANTERS and VICTORIAS to stipulate just between them
without the express consent or prior assent of the laborers or the Federation or Obviously, this particular aspect of these instant cases before Us involve
even the Secretary (now Minister) of Labor, who, under Section 9 of the Act,
questions both of fact and of law. To put things in their proper order and to pin
was supposed to supervise "the distribution of the share corresponding to the
liability for the claim of the laborers on the proper part or parties it would be
laborers. " On such premises, the Court concluded:
best to discuss and dispose of separately the two stages of sharing and payment
We see no legal, equitable nor moral reason for such effort, even as We reaffirm
for the purposes of the instant cases, Our ruling in Talisay-Silay that under no
circumstances should the plantation laborers be deprived of 60% of whatever
increase in share their respective planters employers had obtained from the
Central, that is, whether by the application of Section 1 of the Act when there
were not enough written contracts, or, under the said contracts upon there
being a majority of them.

in question, namely, (1) that which refers to the proceeds of the 1952-53 to
1954-55 crop years and (2) that referring to the proceeds from crop year 195556 to crop year 1973-74.

centrals. Under the terms of said Act, the old practice of the centrals issuing the
quedans to the respective PLANTERS for their share of proceeds of milled sugar
per their milling contracts has not been altered or modified. In other words, the
language of the Act does not in any manner make the central the insurer on
XI
behalf of the plantation laborers that the latter's respectively employersplanters would pay them their share. Had the legislature intended to make the
-Acentral as such insurer, We have no doubt that clear words to such effect would
have been used. Much less is there in the ASCA any provision making VICTORIAS
We will start with what We feel is the stage that involves factual and legal issues responsible in any way for the share due the plantation laborers in the 4%
which may be easily and readily determined, which is that referring to the
obtained by the PLANTERS under said agreement.
proceeds of 1955-56 to 1973-74 crop years. Under the terms of the ASCA, the
ratio of sharing between the PLANTERS and VICTORIAS during that period was to Section 9 of the Act unequivocally provides that 60% of "the proceeds of any
be 64% of said proceeds for the former and 36% thereof for the latter. As this
increase in the participation granted the planters under this Act and above their
Supreme Court held in Talisay-Silay and as held in the decision of the Court of
present share shall be divided between the planter and his laborer. Further, the
Appeals under review, We reiterate, it is indubitable that said proportion of
same provision explicitly mandates that the "distribution of the share
sharing is legal, the ratios fixed in Section 1 of Republic Act 809 notwithstanding. corresponding to the laborers shall be made under the supervision of the
Although nothing is provided in the ASCA as to the share of the laborers in the
Department of Labor." Accordingly, the only obligation of the centrals, like
4% increase the PLANTERS were thus given by VICTORIAS, which under Talisay- VICTORIAS, is to give to the respective planters, like the PLANTERS herein, the
Silay and the decision of the Court of Appeals ought to be 2.4%, or 60% of said
planters' share of the proceeds of the milled sugar in the proportion stipulated
4%, it is admitted on all sides that VICTORIAS religiously gave the PLANTERS their in the milling contract, which would necessarily include the portion of 60%,
full increase of 4% annually from crop year 1955- 56 to crop year 1973-74
pertaining to the laborers. Once this has been done, the central is already out of
thereby leaving it to the PLANTERS to pay their respective laborers the said
the picture, and thereafter, the matter of paying the plantation laborers of the
2.4%.
respective planters becomes the exclusively the concern of the planters, the
laborers and the Department of Labor . Under no principle of law or equity can
The FEDERATION claims and the Court of Appeals so found that the laborers
We impose on the central - here VICTORIAS - any liability to the plantation
were not paid by their respective planters-employers what is legally due them.
laborers, should any of their respective planters-employers fail to pay their legal
Such being the case, We cannot but affirm the judgment of the Court of Appeals share. After all, since, under the law, it is the Department of Labor which is the
that the PLANTERS are liable therefor.
office directly called upon to supervise such payment, it is but reasonable to
maintain that if any blame is to be fixed for the unfortunate situation of the
-Bunpaid laborers, the same should principally be laid on the planters and
secondarily on the Department of Labor, but surely, never on the central.
We cannot, however, share the Appellate Court's holding that VICTORIAS is
jointly and severally liable with the PLANTERS. We cannot perceive any factual
-Cor legal basis for such solidary liability. From the very beginning of the sugar
industry, the centrals have never had any privity of any kind with the plantation Moreover, when We consider that according to their own petitions, both
laborers, since they had their own laborers to take care of. In other words, both original and amended in the court below, the laborers had not been paid their
the centrals and the planters have always been the one dealing with their
share since after the 1954-55 crop year, and their original petition was filed only
respective laborers regarding the terms and condition of their employment,
in November 1962, We feel inclined to believe that if the laborers were
particularly, as to wages. Nowhere in Republic Act 809 can We find anything
convinced that they had any kind of cause of action against VICTORIAS, it is quite
that creates any relationship between the laborers of the planters and the
unexplainable why it took them practically more than six years to file their suit.

It is just as remarkable that they did not move even against their very
employers, the PLANTERS, during all that time. In any event, as We have already
stated, We find no legal nor equitable basis for the pretended joint and several
or solidary liability of VICTORIAS with the PLANTERS to the laborers. Its act of
paying the PLANTERS the full 4% increase was not illegal or contrary to law, for it
was in fact in fulfillment of its obligation both under Our Talisay-Silay ruling and
the provisions of the ASCA.

written milling agreements, is valid, but that there should be deemed written
into said agreements a stipulation providing that 60% of Planters '4% increase in
participation belongs to appellants herein for the entire duration of the same
period pursuant to Section 9 of Republic Act 809;
xxx

xxx

xxx

5.

Ordering appellees, jointly and severally, to pay appellants:

-DIncidentally, it may be added, the Rules and Relations to implement Section 9 of

Republic Act 809, "issued by the Secretary of Labor on February 23, 1956, as
amended on May 4, 1956, do provide pertinently that the laborers' share in the
increase in participation accruing to the planters shall be included in the
quedans covering said increase issued in the planters' name with the following
notation on the face of the quedan sixty per centum (60%) share of laborers in
the increase in the participation of planters under Sugar Act of 1952 included."
But absent any iota of evidence indicating that such was not done, We are under
the law supposed to presume that the regulations have been complied with.
Nowhere in the Federation's unusually lengthy and prolific brief is there any
indication otherwise. And whatever the respective PLANTERS did after those
quedans were issued to them cannot under any concept of law or equity be
imputed to VICTORIAS or to any imaginable connivance between it and the
PLANTERS to prejudice the laborers. There was nothing that VICTORIAS could
conceivably gain in any such nefarious arrangement to induce it to take the risk
of ultimately being made liable in the manner done by the Court of Appeals.
-EIt is indeed noteworthy that whereas, as We shall discuss presently, with regard
to the payment of the laborers' share in the proceeds of the 1952-53 to 1954-55
crop year (60% of 6% out of the 10% provided in Section 1 of Republic Act 809),
the Court of Appeals rather extensively argued and discoursed, with, to be sure,
seeming or apparent plausibility what considerations, in its view, ought to make
VICTORIAS, jointly and severally or solidarily liable with the PLANTERS, 2 hardly
did said Court lay down any premise for the following portion of its judgment
now under review:

(a)
The sum equivalent to sixty (60) percent of Planters' increase in
participation of four (4%) percent, beginning November 1, 1955, and ending
October 31, 1974, inclusive, with interests thereon at the legal rate of 6% per
annum until fully paid;" (Pp. 79-80, Annex A, CENTRAL's Brief)
The only statement or finding or holding We can see in such challenged decision
which might be said to refer to the point under discussion is the following:
In the light of all the foregoing, we hold, in disposing of the first issue herein
discussed, that the existence of milling agreements does not necessarily render
Republic Act 809 inapplicable or inoperative as to the contracting parties but the
Act remains applicable and operative in all cases where the milling agreements,
executed subsequent to June 22, 1952, provide any increase in planters'
participation, as the term 'increase in participation is defined herein.
Accordingly, the ASCA and the other derivative sugar milling contracts are
hereby declared modified so as to be caused to be read thereinto a provision
granting the plantation laborers, or the appellants herein, 60% of the 4%
increase in planters' participation stipulated therein, commencing from
November 1, 1955 to October 31, 1974. They should likewise be entitled to legal
interest for the same period. (Page 49, Id.)
Well and good, but the Appellate Court did not say that with such construction it
had made of the Act, (to be sure, in accord with Talisay-Silay) it became the
obligation of VICTORIAS to see to it that the respective laborers of the PLANTERS
were duly paid their share of 2.4% or 10% of the 4% increase the PLANTERS
were given.

The foregoing judgment becomes more incomprehensible when it is recalled

3.
Declaring that the participation of 64% for Planters and 36% for Central that in its minute analysis of the ASCA insofar as the provisions thereof
commencing from November 1, 1955 to October 31, 1974, as stipulated in these stipulating a 64%-36% sharing between the PLANTERS and the CENTRAL of the

proceeds of milled sugar during crop years l955-56 to 1973-74, it found that in
so stipulating such ratio of sharing in said ASCA, there was no evidence at all
that on the part of VICTORIAS and the PLANTERS, for that matter-of any
circumvention, and We can add, even of any intent to circumvent, the
provisions of the Section 1 of the Act. To Our mind, for the Appellate Court to
impose upon VICTORIAS join and several liability with the PLANTERS, in the light
of its just quoted predicates, for the latter's failure to pay their respective
laborers the 2.4% corresponding to said workers, is not only a veritable non
sequitur but an utterly baseless legal conclusion that cannot be allowed to stand
uncorrected. Accordingly, it is Our considered opinion, and We so hold , that the
portion of the judgement of the Court of Appeals just quoted should be as it is
hereby REVERSED, and whatever liability there exists in favor of the plantation
laborers should be pinned exclusively on the PLANTERS, their respective
employers. We must add though, that it was the Department of Labor's
unexplainable inattention, not to say negligence, in performing its own
corresponding obligations under Section 9 of the act that contributed to a
considerable extent to the said plight that befell the said laborers. 'There was
perceptible lack of sufficient concern and initiative, to say the least, in the
Department's attitude and actuations in the premises. lt may be said that its
vigilance concerning the rights of labor was unhappily not up to the expectations
of the lawmakers when they approved the Act.
XII

That will now be resolved, therefore, is whether or not appellants have, in fact,
received the amount of P 5,185,083.34.
By way of a short flashback, it is to be recalled that the laborers' P5,185,083.34
was under the ASCA, to be disposed of as follows: P1,186,083.34 was to be
distributed to the laborers, under the supervision of the Secretary of Labor, and
P4,000,000.00 was to be invested in Central's shares of stock.
It may be pertinent, at this point, to make a brief reference to the mechanics of
this investment. As provided in the ASCA, the P4,000,000.00 of the
P5,185,083.34 belonging to the appellants laborers was to be invested in 40,000
shares of Central's capital stock (with par value of P100.00 per share)
redeemable after a period of time by Central. This investment was to be
administered by the 'Special Committee', designated in the ASCA as
representative of Planters. On August 13,1956, pursuant to the ASCA of March
5,1956, Central issued the 40,000 shares in four certificates of 10,000 shares
each, in the names of five members of the 'Special Committee' or 'Board of
Trustees', to wit: Vicente F. Gustilo, Jesus Suarez, Simon de Paula, Fernando J.
and Jose Gaston, in their capacity as 'trustees' for appellants-laborers. Three of
these five having died, Gustilo and Gaston, with the assistance of legal counsel
of Central, filed a petition for their replacement, with the Court of First Instance
of Negros Occidental (Exhibits JJJJJ-1 thru JJJJJ-3) resulting in the appointment of
three new members: Ysmael Reinoso, Newton Jison, and Enrique Hinlo (Exhibits
JJJJJ-7 thru JJJJJ-9). Gaston and Gustilo themselves having died, only the three
new members could testify during the hearing of the case in the court below.

With the matter of the liabilities relative to the share of the laborers in the
proceeds of the 1955-56 to 1973-74 crop year thus clarified and determined,
We can now pass to what happened to the participation due the laborers during Through subpoenas duces tecum (Exhibits IIIIII, KKKKKK and LLLLLL each of the
the 1952-53 to 1954-55 crop years. Again, this is an inquiry that involves both
three was commanded:
issues of fact and of law.
... to bring with him the complete record of the Board of Trustees beginning
In this connection, let us hearken first to how the Court of Appeals made its
March 5, 1956, of the sums of P4,000,000.00 and Pl,186,083.34 referred to in
conclusion of fact in respect to P5,185,083.34 that it found to be the unpaid
the Amicable Settlement Compromise Agreement dated March 5, 1956,
share of the laborers before the execution of the ASCA:
executed between Victorias Milling Co., Inc., represented by its President Carlos
L. Locsin and, Vicente F. Gustilo, Jesus Suarez, Simon de Paula, Fernando.
In resolving the third and last issue set forth above, we have taken note of
appellants' position that Central and Planters are guilty Of 'misappropriation' of The evidence shows that, except for a small part (P 180,679.38) of the sum of P
the amount of P 5,185,083.34 belonging to them which accrued during the
5,185,083.34, the entire P l,186,083.34 was actually paid to the laborers. Thus,
period from June 22, 1952, to October 31, 1955 as their 60% share of Planters
testified witness Felipe de Guia, representative of the Department of Labor in
10% increase in participation totalling, during the same period, P 8,643,472.24. charge of the distribution:

COURT:
Q.
Mr. de Guia, you said that there were some amounts that were not
distributed because some laborers cannot be located; is this the amount
mentioned in this Exh. "23", under the words 'amount of undistributed of
windfall'?
A.

For his part, Pfiffner, treasurer-comptroller of Central, testified that Central had
nothing to do with the sale of the 40,000 shares in which the P4,000,000.00 was
invested; that it was the Board of Trustees, which sold the shares. Thus:
Q.
Are you trying to say, Mr. Pfiffner that the amount of 40,000 shares of
stock and their dividend also in stock were sold with the consent only of the
Board of Trustees?

Yes, sir, P 180,679.38 (tsn.p.23,Junel8,1970)

A.

Yes, Sir.

Q.
it?

... And the defendant Victorias Milling Co., Inc., had nothing to do with

A.

That is correct.'(p.86,tsn.,June 16, 1970).

Appellants themselves, in their brief, have made the following observations;

So, it can be assumed without fear of contradiction that the last portion of the
said amount of P l,186,083.34 was delivered, if ever, to PLANTERS-APPELLANTSLABORERS after February 18,1957.(Appellants' Brief, p. 326)

The evidence, however, fails to show that the amount of P 4,000,000.00

Appellees claim that witness Felipe de Guia, Chief of the Agricultural Wage
(invested in Central's shares of stock pursuant to the ASCA) and its accruals have Section of the Department of Labor, had testified on the distribution to and
ever been received by appellants-laborers.
receipt by appellants-laborers of the principal and earnings of the P
4,000,000.00 invested in the 40,000 shares. This claim however, is not borne out
S. Gonzaga and Jose Gaston, representing the sugarcane planters affiliated with by the records in fact, de Guia denied any knowledge of the whereabouts of the
the Company in connection with Civil Case No. 22577 of the CFI of Manila.
proceeds of the sale and earnings of the 40,000 shares of stock. (Emphasis Ours)
Testifying on June 17, 1970, Jison, vice-chairman said he could not bring the
documents asked of him because Gaston, as chairman of the Board of Trustees,
had taken custody of all the records; that these records remained in Gaston's
custody up to the time of his death; that since Gaston's death in 1969, 'we did
not have any meeting and practically we forgot all about it. And he has still all
the records so I cannot bring the records requested of me.' (p. 37, tsn., June 17,
1970).
Hinlo, secretary to the Board of Trustees, could not bring any of the documents
subpoenaed, either, 'because I have resigned already as Secretary of the Board
of Trustees in February, 1970, and the records are all in the hands of the late
Jose Gaston.' (P. 58, tsn., June 18,1970).

Testifying on June 18, 1970, as a representative of the Secretary of Labor,

witness de Guia stated: that he had no knowledge of the 40,000 share of stock,
and that he did not know about the prices at which the 40,000 shares of stock
were sold (p. 14, tsn., June 18, 1970). He further stated that he did not know
about the income in dividends earned by the 40,000 shares of stock (p. 16, tsn.,
June 18, 1970), although he admitted having supervised the first distribution of
the amount of P l,186,083.36 to appellants-laborers (p. 2 1, tsn., June 18, 1970).

It is clear from the evidence that, after Central issued the 40,000 shares of stock
in the names of the five members of the "Special Committee'" or "Board of
Trustees" representing, vis-a-vis Central ,both Planters and appellants-laborers,
the said 'Special Committee" or "Board of Trustees" in its capacity as trustee for
appellants-laborers, sold these 40,000 shares to various buyers, some of the
Reinoso, treasurer of the Board of Trustees, did not appear at the hearing set for shares going to Central and some to Planters, and that proceeds of the sales of
June 18, 1970, but his lawyer manifested that the only document he, Reinoso,
these shares were received by the said "Special Committee" or 'Board of
had, was a copy of the ASCA of March 5, 1956.
Trustees' and delivered to Planters for distribution to appellants-laborers. Thus,
'Special Committee' vice-chairman Jison explained:

Q.
Would you like to tell this Honorable Court what happened to the
money, whether in cash, check or in terms of shares of stock which was
delivered by the Victorias Milling Co., Inc. to the Board of Trustees?

That pursuant to Sec. 9 of said Act, respondents PLANTERS gave to petitioners

LABORERS the latters' lawful participation in the sugar production as well as in
the by-products and derivatives thereof and continue to give the same until
November 1, 1955, when they ceased to do so until the present

A.
The stock of shares of the Victorias Milling Co., Inc. which was delivered
to the Board of Trustees was sold and liquidated according to the Amicable
Settlement-Compromise Agreement and in such case, checks were issued to be
delivered to the respective laborers under the supervision of the Department of
Labor. So fat the record is concerned, the Department of labor has all the
records.' (pp. 37-38, tsn., June 17, 1970).

but appellants-laborers have explained that what they meant by the quoted
paragraph was that their 6% share had actually been set aside during the period
from June 22,1952, to October 31, 1955 (p. 1446, Appellants' Reply Brier, not
that the amounts due were actually delivered to or received by plaintiffsappellants-laborers. Besides, no questions were raised during the trial of this
case when the matter of the investment of the P4,000,000.00 was taken up by
Not a shred of evidence, however, has been introduced into the record to show counsel of plaintiffs-appellants-laborers. In fact, counsel of Central agreed that
that the proceeds of the sales of the 40,000 shares of stock and the increments what happened to the P4,000,000.00 was a proper issue in the case (p. 26, tsn.,
in cash and stock dividends have been actually delivered to or received by
April 28, 1970). Furthermore, when Felipe de Guia, Chief Agricultural Wage
appellants-laborers. The three surviving members of the 'Special Committee' or Section, Department of Labor, testified as representative of the Secretary of
'Board of Trustees', namely Messrs. Ismael Reinoso Newton Jison, and Enrique
Labor, on the matter of distribution of the P1,186,083.34, no objections were
Hinlo, who were supposed to be the guardians or administrators of the
raised either by defendants-appellees. Again, when counsel for plaintiffsP4,000,000.00 invested in Central's 40,000 shares of stock, could not present
appellants-laborers asked witness de Guia about the records of the distribution
any document whatsoever showing or tending to show that the proceeds of the of the amounts of P1,186,083.34 and the P4,000,000.00 and its dividend
sales were actually delivered to the Planters concerned and subsequently paid
earnings, counsel for Central likewise agreed to the production of whatever
to the laborers.
records there were available concerning these amounts (p. 157, tsn., June 16,
1970).
Central argues that in the petition of appellants-laborers, no issue has been
raised by the allegations concerning the latter's 6% participation from June 22,
But no records whatsoever were produced until the presentation of the
1952 to October 31, 1955, amounting to P 5,186,083.34. Neither, it says, have
evidence of the parties was closed.
appellants-laborers prayed for any relief in connection therewith. In fact, it goes
on to say, appellants-laborers have admitted receipt of all amounts due them
In effect what has been established by the evidence is that the P4,000,000.00
within the period mentioned, citing paragraphs 8, 9 and 10 of the petition,
together with its earnings in dividends in the total amount of P3,385,950.00 (p.
thereby estopping themselves from raising any issue as to such amounts in the 66, tsn., June 16, 1970), has not be en distributed to or received by plaintiffsinstant appeal.
appellants-laborers. (Pp. 6574, Appendix A, Victorias' Brief)
These arguments are more technical than substantial. It is true enough that the
petition does not categorically state any specific relief desired with respect to
the amount of 15,186,083.34, but it does contain a general prayer 'for such
other relief as may be just and equitable in the premises'. And this general
prayer is broad enough 'to justify extension of a remedy different from or
together with the specific remedy sought. (Schenker v. Gemperk L-16449, Aug.
31, 1962, 5 SCRA 1042). lt is also true that paragraph 10 of the petition states -

-BIn their brief filed with Us, the PLANTERS vehemently dispute these conclusions
and argue thus:
THIRD ASSIGNMENT OF ERROR
THAT THE COURT OF APPEALS ERRED IN FINDING AND CONCLUDING THAT THE
SUM OF FOUR MILLION (P 4,000,000.00) PESOS OUT OF THE FIVE MILLION ONE

HUNDRED EIGHTY SIX THOUSAND AND EIGHTY THREE & 34/ (P5.186,083.34)
PESOS CONSTITUTING THE 60% SHARE OF THE LABORERS IN THE 10% INCREASE
IN PARTICIPATION OF THE PLANTERS FROM THE CENTRAL UNDER REPUBLIC ACT
NO. 809 FROM JUNE 22, 1952 (THE DATE OF THE EFFECTIVITY OF SAID ACT) TO
OCTOBER 31, 1955 (THE DAY PREVIOUS TO NOVEMBER 1, 1955 WHICH IS THE
EFFECTIVE DATE OF THE MILLING AGREEMENTS OF THE PLANTERS AND THE
CENTRAL), WAS NOT DISTRIBUTED TO AND RECEIVED BY THE LABORERS, SUCH
FINDINGS BEING BASED ON A MISAPPREHENSION OF THE SPECIFIC ISSUES
INVOLVED IN THE CASE AND GOES BEYOND THE RANGE OF SUCH ISSUES, ASIDE
FROM BEING CONTRARY TO THE ALLEGATIONS OF THE ORIGINAL PETITION. AS A
COROLLARY, THE COURT OF APPEALS ERRED IN HOLDING THAT THE PLANTERS
AND THE CENTRAL ARE JOINTLY AND SOLIDARILY LIABLE THEREFOR.
In relation to this assignment of error, the Honorable Court of Appeals stated
thus:
... if it is further considered, as shown in our resolution of the third issue, that
this amount of P 4,000,000.00, along with its accruals, was never received by
the plantation laborers to this day, the unwisdom of investment, let alone its
illegality, is hardly in doubt.'

On pages 17 et seq. of the Decision of the Court of Appeals, reference is made

to a document known as the "Amicable Settlement-Compromise Agreement'
and referred to by the Court of Appeals for convenience as ASCA. This ASCA is
quoted in full on pages 18-24 of the Decision. (Appendix 'A', pp. 25-35).
In said ASCA, which was executed on 5 March 1956, it was stipulated that from
June 22, 1952, when the Sugar Act took effect, to October 31, 1955, the parties
recognized that said Sugar Act was applicable. Consequently, the Planters were
entitled to a 70- 30 sharing basis from the Central, thereby earning a 10%
increase in their previous participation of 60%. This 10% increase amounted to
P8,643,472.24.
Of this P8,643,472.24, the Planters were entitled to 40% thereof or
P3,457,388.90 and the laborers were entitled to 60% thereof or to the amount
of P5,186,083.34. Of this latter amount, it was agreed that P1,186,083.34 was to
be distributed by the Planters to their laborers while the remaining
P4,000,000.00 was to be invested by a Special Committee in shares of stock of
the Central.
It is this amount of P4,000,000.00, therefore, that is involved in the present
consideration.

(Appendix "A" pp. 75-76).

... and the fact that the laborer's P4,000,000.00 worth of shares and their
earnings have, without any explanation from anyone from the Central from the
Planters. or from the Special Committee, vanished into limbo without the
laborers being able to actually receive any cent of the same.'

The Court of Appeals held that this amount was not distributed to and received
by the Laborers.
We respectfully and humbly submit that this finding and conclusion of the Court
of Appeals has no basis in law and fact, and is contrary to the law of evidence
and to evidence on records.

(Appendix "A", p. 77)

Said finding has no basis in law and in act.
In effect, what has been established by the evidence is that the P4,000,000.00,
together with its earnings in dividends in the total amount of P3,385,950.00 (pp. Before we proceed, it might be pertinent to inquire into what is being claimed
6, tsn., June 16,1970), has not been distributed to or received by the plaintiffs(their cause of action) by the Laborers in their petition or complaint.
appellants-laborers.
A simple perusal of the petition will reveal that the Laborers are asking for their
(Appendix "A", p. 91).
share under the Sugar Act of 1952, from November 1, 1955 to date. In other
words, there is no claim whatsoever in the petition for any amount
For the Purposes of clarification, let us inquire into the question as to what
corresponding to the period covered from June 22, 1952 to October 31, 1955.
P4,000,000.00 does the Court of Appeals refer to:
Thus, the Laborers in their petition dated November 9, 1962 alleged:

That pursuant to Sec. 9 of said act, respondents planters gave petitionerslaborers the latter's lawful participation in the sugar production as well as in the
by-products and derivatives thereof and continued to give the same until
November 1, 1955 when they ceased to do so until the present.'

in their amended petition dated March 6, 1964, (See Annex C-1, Central's
petition for review on certiorari).
The Honorable Court of Appeals itself found also as a fact that:
... it is also true that paragraph 10 of the petition states-

In consonance with their allegations in said paragraph 10 of their petition dated

November 9, 1962, laborers in paragraphs 1 and 2 of their prayer, prayed that
judgment be rendered:
(1)
Declaring the applicability of the Victorias Mills District of the sharing
participation prescribed by Republic Act 809 for every crop year starting with
the crop year 1955-56.
(2)
Ordering respondent planters and/or respondent Central to account for
and petitioners laborers' lawful share in the sugar produce, as well as the byproducts and derivatives thereof, for every crop year from the crop year 195556, in accordance with Rep. Act No. 809. plus legal interests thereon computed
on the basis of the average market price during the month in which the sugar
was sold;

That pursuant to Sec. 9 of said Act, respondents PLANTERS gave to petitioners

laborers the tatters' lawful participation in the sugar production as well as in the
by-products and derivatives thereof and continued to give the same until
November 1, 1955, when they ceased to do so until the present;
(Appendix "A", p. 89, Italic supplied)
From the foregoing, it is obvious that the share pertaining to the laborers
covering the period from October 31, 1952 to June 22, 1955 was never made an
issue in the case at bar.

Since the share pertaining to the laborers was never made an issue in the case
at bar for the simple reason that the Laborers have expressly admitted in their
pleadings the receipt of their entire share covering from October 31, 1932 to
(See Annex 'C' of the Petitioner's Petition)
June 22, 1955, therefore, the Court of Appeals, in holding the planters jointly
and solidarily liable with the central for P6,399,105.00 plus 6% interest per
Said admission of the laborers in paragraph 10 of their petition dated November annum and P180,768.38 plus 6% per annum all representing the laborers' share
9, 1962 and in their prayer, to the effect that they have already received their
pertaining to said period, gravely abused its discretion said abuse of discretion
lawful participation in the sugar production as well as in the by-products and
amounting to lack of jurisdiction.
derivatives thereof from 1952 until November 1, 1955 was again reiterated in
the 'consolidated opposition to the motion to dismiss', dated February 28, 1963, It is a well settled principle in procedure that courts of justice have no
when they argued and we quote:
jurisdiction or power to decide question not in issue (Limtoco vs. Go Fay, 80 Phil.
166-176).
To recapitulate, inasmuch as the present action is not merely for the recovery of
money, but is primarily brought for the enforcement of Republic Act No. 809
Thus in the following cases this court held:
and the declaration of its applicability to the respondents for the crop year
starting with the crop year 1955-56, we respectfully submit that this Honorable It is a fundamental principle that judgments must conform to both the pleadings
Court has jurisdiction over the subject matter of the present action. (See Annex and the proof, and must in accordance with theory of the action upon which the
'C' of respondents' Petition for Review on certiorari by respondent Victorias
pleadings were framed and the case was tried; that a party can no more succeed
Milling Co., Inc.' (emphasis supplied).
upon a case proved, but, not alleged than upon one alleged but not proved
(Ramon vs. Ortuzar, 89 Phil. 730, 742). (emphasi supplied)
Said allegation in paragraph 10 of the laborers petition dated November 9, 1962
as well as in paragraphs 1 and 2 of the prayer were again reproduced verbatim

A judgment going outside the issues and purporting to adjudicate something

upon which the parties were not heard, is not merely irregular, but extrajudicial
and invalid.' Salvante vs. Cruz, 88 Phil. 236, 244; Lazo vs. Republic Surety &
Insurance Co., Inc., 31 SCRA 329, 334).
The actuation of the trial court was not legally permissible, especially because
the theory on which it proceeded involved factual considerations neither
touched upon in the pleadings nor made the subject of evidence at the
allegations of the parties of their respective claims and defenses submitted to
the court for trial and judgment.' This rule has been consistently applied and
adhered to by the courts.

Soriano is bound by his own petition and by the adjudication of his claim made
in consonance with his prayer. A party cannot trifle with a court's decision or
order which he himself sought with full awareness of his rights under the
premises, by taking it or leaving it at pleasure. The allegations, statements or
admissions contained in a pleading are conclusive as against the pleader. A party
cannot subsequently take a position contradictory to, or inconsistent with, his
pleadings, (Mc Daniel vs. Apacible, 44 Phil., 448; 49 C.J. 128-134). Specifically, he
is not allowed to ask his money back when the peso value is good, and later say
he wants to keep the land when the peso purchasing power is down. 'Cunanan
vs. Amparo, et al., 45 Off. Gaz., 3796, (The Revised Rules of Court by Francisco
Evidence, p. 66).

Moreover, to award damages in favor of petitioner Miguel Tolentino, Sr., and

against herein private respondents would violate the cardinal rule that a
judgment must conform to and be supported by both the pleadings and the
proofs, and should be in accordance with the theory of the action on which the
pleadings were framed and the case was tried (Secundum allegata et probata
Republic vs. de los Angeles, 41 SCRA 422, 450, Emphasis supplied).

An admission in a pleading may be made by an express acknowledgment of

some fact or facts set forth in the pleading of the opposite party, or by a failure
to deny or otherwise controvert the truth of such fact or facts. Thus, facts
alleged in the complaint are deemed admissions of the plaintiff and binding
upon him. Facts alleged in the answer are deemed admissions of the defendant
and binding upon him. And facts stipulated in an agreement Of facts are
deemed admissions of both parties and binding upon them. Facts stated in a
Said findings is contrary to the law on evidence
motion are deemed admissions of the movant and binding upon him. The
allegations, statements or admissions in a pleading are conclusive as against the
As previously shown, the Laborers have expressly admitted in their pleadings the pleader who cannot subsequently take a position contradictory to, or
receipt of their entire share covering the period from October 31, 1952 to June inconsistent with his pleadings.' (Cunanan vs. Amparo, 45 O.G. 3796) (The
22, 1955, or all of the P5,186,083.00.
Revised Rules of Court, Evidence, Francisco, p. 66).
What then is the legal effect of said admission by the Laborers.
Section 2, Rule 129 of the Rules of Court provides:
Judicial admissions. Admissions made by the parties in their pleadings, or in
the course of the trial or other proceedings do not require proof and cannot be
contradicted unless previously shown to have been made through palpable
mistake.
(Emphasis supplied)
In relation to the foregoing rule, this Honorable Court in the following cases
held:

An admission may occur in the complaint as well as in the answer. Thus where a
complaint alleged the amount of the account to be $541.90, and that there was
a balance due, after deducting all payments, of $175.75, it was held that the
plaintiff admitted the payment of $366.15, and that the defendant was not
precluded from insisting upon this admission by disputing the correctness of the
items of the account. (White vs. Smith, 46 N. Y. 418.)
The defendant's allegation in his answer that the plaintiff still owes him after
deducting the value of the goods alleged to have been taken by the defendant
from the plaintiff, if, interpreted in conjunction with the defendant's
counterclaim for the balance resulting, after deducting the price of said goods, is
an express admission of the existence of the obligation for the value of said
goods. (Jurika vs. Castillo, 36 Off. Gaz., 476.)

Notwithstanding that the law on evidence So declares that such an admission

does not require proof and cannot be contradicted, the Court of Appeals still
gave credence to respondent Laborers' explanation in their Reply Brief.
(Appendix "A", pp. 89-90), which is not evidence at all. To sustain this finding is
to give evidentiary value to an argument in party's reply brief. This is against all
rules of evidence required such test as to admissibility, competency, relevancy,
and materiality and which can only be accomplished during the trial proper.

that pursuant to Sec. 9 of said act, respondent-planters gave petitionerslaborers the latter's lawful participation in the sugar production as well as in the
by-products and derivatives thereof and continued to give the same until
November 1, 1955 when they ceased to do so until the present..
is that ...

The Honorable Court of Appeals, in futile effort to justify its ruling that the share
pertaining to labor covering the period from June 22, 1952 to October 31, 1955
was not distributed to the laborers despite the admission made by the laborers
in their pleadings that they have already received their share covering said
period, argued that respondents laborers have explained that what they meant
by the quoted paragraph was that their 60% had actually been set aside during
the period from June 22, 1952 to October 31, 1955, (page 1446, appellants'
Reply Brief), not that the amounts due were actually delivered to or received by
plaintiff appellants laborers. (Appendix 'A', pp. 89-90)

the 60% of plaintiff-appellant-laborers in the annual 10% increase participation

of the defendant appellees planters had in fact been set aside pursuant to
Section 9 of Republic Act 809 for the duration of the period beginning June 22,
1952 and ending October 31, 1955.

But it should be noted that this contention of the Laborers was raised for the
first time only in their Reply Brief long after the trial of the case. In other words,
it was a second thought of the Laborers brought about in their Reply Brief, thus
amounting to change in theory and a deprivation of the right of the Planters to
be apprised of the real issue for their defense.

Suffice it to state their admission in paragraph 10 of their petition being

conclusive as against them which they cannot thereafter contradict (Cunanan v.
Amparo, Supra) established the fact that they already received their share under
the Sugar act of 1952 up to November 1, 1955 and against this fact no argument
can prevail.

Although it may be true, that under Section 2, Rule 129 of the Rules of Court by
way of exception the Court may in its reasonable discretion relieve the party
from the effects of his admission, yet the same can be had only upon proper
showing that said admission was made thru palpable mistake. In the instant case
the admission made by the respondent-laborers found in paragraph 10 of their
petition as well as paragraphs 1 and 2 of their prayer was never shown to have
been made thru palpable mistake.

CONTRA FACTUM NON VALET ARGUMENTUM.

Since said admissions were never withdrawn, modified or explained or shown to

have been made thru palpable mistake, therefore, Laborers were never relieved
of the effects of their admission which under the rule on evidence is conclusive
upon them.

That the record is replete

with evidence showing that
the share of the laborers

Reading of the explanation of respondent-laborers as appearing in page 1446 of were distributed to them.
their reply brief relied upon by the Court of Appeals reveals that the allegations
in paragraph 10 of their petition dated November 9, 1962 as well as the
Not only is there an admission by the Laborers of their receipt of the
amended petition dated March 6, 1964 was never made thru palpable mistake. participation granted them by the Sugar Act up to November 1, 1955, but the
record is replete with evidence showing that there was a distribution of this
What was explained by respondents-laborers in page 1446 of their reply brief
amount of P4,000,000.00 and its accruals, from year to year from a witness
was the meaning of said paragraph 10. According to the respondent-laborers
presented by the Laborers themselves.
what they meant by their allegation in paragraph 10 ... .

Mr. Felipe de Guia, Chief of Agriculture wage Section of the Department of

Labor, a witness for the laborers testified that they made a distribution, or
COURT
supervised the distribution of the participation of labor covering the period from
June 22, 1952 to October 31, 1955, pursuant to the provision of Section 9,
Q.
June 22 of what year?
paragraph 2 of the Sugar Act that 'The distribution of the share corresponding to
the laborers shall be made under the supervision of the Department of Labor.'
A.
June 22, 1952 to October 3l, 1955.
Thus he testified:
Proceed.
xxx
xxx
xxx
ATTY. SABIO
Q.
Mr. Guia, what steps, if you know the Department of Labor has taken. . .
. I withdraw the question.
Q.
Under what law that is due to them? 'A. RA 809, otherwise, known as
Sugar Act of 1952.
Q.
As Chief of the Agricultural Wages Section under the Department of
Labor, do you know what steps your section of the Department of Labor has
A.
By the way, Mr. Guia, what section or Division of the Department of
taken to implement Section 9 of RA 809, otherwise, known as Sugar Act of 1952, Labor is embodied the implementation of RA 809? 'A. The Agricultural Wage
with the Victorias Milling District, Negros Occidental?
Section of which I am the Chief.
A.
Yes, sir, we have distributed also the supposed share of the laborers
amounting to 6,717,360.00.

ATTY. HAGAD
CROSS EXAMINATION

COURT
Q.
Q.

How was this amount of P9,612,421.36 distributed?

When was that distribution made?

A.
The original amount which is supposed to be distributed is
P5,186,083.36; but on account of converting the 4,000 shares of the laborers'
shares of the stock, it was distributed continuously year to year. The dividends
Proceed.
amounted to more than 1,000,000.00, which is added to this amount. It was
based practically on the 10% increase participation due to the planters of the
ATTY. SABIO
Victorias Milling District, wherein 60% of the 10% increase participation
represented the said amount which was distributed among the laborers of the
Q.
This distribution covered the period from June 22, 1952 to what period? Victorias Milling District.
A.

It was made in the year 1955.

A.

To October 3l, 1955.

Q.
Will you kindly tell the Court the basis of the distribution of the amount
distributed?

Q
So, P5,186,083.36 was 60% Of 10% was the increase participation of the
planters within the Victorias Milling District, for the period from June 22, 1952
to October 31, 1955; is that right?
A.

A.
As I understand, this amount was the participation due to the laborers
working in that milling district, from June 22, 1952 up to October 31,1955.

Yes, sir.

(t.s.n., pp. 17-21, December 15, 1967) Lorenzo C. Caraig; emphasis supplied).

ATTY. SABIO

WITNESS:

Q.
Do you have in your possession the record on how this amount of
P1,186,083.34 marked as Exhibits 'XXX' thru XXX-6?

Atty. Sabio, I just want to clarify your statement the distribution I personally
handled, I want that to be corrected. If you will allow me, sir, if Mr. Bascug can
recall that in our distribution from the first to the fourth I think each and
everyone of them even their members could really testify to the effect that the
distribution was orderly undertaken. I just want to put that on record. There
should be no insinuations, with due tolerance, being the supervisor of the
distribution.

A.

Yes, sir.

Q.

Would you be able to bring that next time?

A.

I think so.
ATTY. SABIO:

Q.
Would you be able or do you have in your possession a record showing
how the amount of P4,000,000.00 marked as Exhibit XXX-10 was disposed of ?

We do not make any insinuation. We only want the record. In the interest of all
concerned and in the interest of justice, if the records will be brought here we
A.
Not with the P4,000,000.00 because the distribution of this amount was hope that the records are not irregular and we believe if they are regular no
made in five releases as per what is stated in the statement as presented here. responsibility would be incurred by any official of the Department of Labor.
Q.
At any rate, my question is: Do you have in your possession the record
of the distribution of the P 4,000,000.00?

WITNESS:
Which are you referring to, Atty. Sabio ?

A.

Yes, sir.
ATTY. SABIO:

(t.s.n., pp. 143-144, June 16, 1970, L. Caraig; emphasis supplied).

Any official of the Department of Labor.
Again:
WITNESS:
COURT:
What charge of irregularity?
What is the purpose now of Atty. Sabio in presenting those records?
ATTY. SABIO:
ATTY. SABIO: '
The distribution of P5,186,083.34.
We will show that not only a portion of the amount of P5,186,083.34, including
of course the earnings, was distributed that properly belong to the laborers.
COURT:
Why not find out from Mr. de Guia the record about the distribution how much
was distributed?

WITNESS:
In order to facilitate all those records in bringing here, can I request Atty. Sabio
any personnel that can accompany me. Because the records are so voluminous.
For one distribution of one planter there are no less than 28 pages and there are
five distributions. So I am requesting Atty. Sabio to give me an assistant to come

as well as bring the records and I am willing to bring all those records because I
have nothing to hide. It is also shown that there are those laborers who were
not able to receive and it stated in the undistributed amount.'

Q.
As first of the team of supervisors, you supervised the actual delivery of
the money to the laborers; is that correct?

(t.s.n., pp. 151-154, June 16, 1970, V. Salvarino emphasis supplied).

A.

On cross examination, this witness further testified thus:

(t.s.n., pp. 20-22, June 18, 1970; Lorenzo Caraig).

Atty. Hagad

Silence of Central Planters,

O.
My question Mr. de Guia, is this, the figures referred to in Exh. 23.
Victorias Milling Co., Inc. came from the records of your office, is that correct?

and Special Committee

Yes, sir.

According to this Honorable Court, because there was no 'explanation from

A.
Yes, sir.
anyone from the Central ,from the Planters or from the Special Committee.
(Appendix 'A', p. 77) as to the distribution of this amount of P4,000,000.00 then
Q.
Exh. 23 mentioned first, second and up to the fifth distribution. What do the conclusion is that the said amount was never distributed to the plantation
you mean by this ?
laborers. This conclusion is entirely lacking in basis. For it has been established in
the preceding paragraphs that according to law (Section 2, Rule 129, Rules of
A.
There are distributions undertaken in the Victorias Milling Co., Inc. The Court), such an admitted fact does not require proof. If so, what was there to be
first distribution was stated here is in accordance with the number that is
proved by the Planters, the Central or the Special Committee as to the
corresponding to the amount distributed or released for distribution among the distribution of the said P4,000,000.00 when there is no dispute as to this fact,
laborers of the Victorias Milling Co., Inc.
the same being admitted in the pleadings.
Q.
By the first distribution, you are referring to the Amicable Settlement
Compromise Agreement the amount of P1,186,083.36 and this correspond to
the same amount indicated in the Amicable Settlement-Compromise Agreement
you also Identified,: is that correct ?
A.
I do not know exactly if this figure stated there is correct but I have to
check whether it tallies with it.
Q.

Which figures is reflected in Exh. XXX and Exh-XXX-9?

A.

There is difference of 2 centavos.

Q.
These other distributions that you made, were those also done under
your supervision beginning from the second up to the fifth distribution')?
A.
(Correction, please). I was not the one who made the distribution: I was
only concerned on the first distribution which was supervised.

Not only did this Honorable Court err in finding that the P4,000,000.00 was not
distributed to the Plantation laborers, but it also fell into error when it held that
it could order Planters and Central to pay the said amount to the Laborers even
something they did not ask specifically under the general prayer, especially so
because such a relief is inconsistent with the admission of the respondent
laborers that they were already given their share corresponding to the period
from June 22, 1952 to October 31, 1955. While it may be true that a general
prayer is probably broad enough 'to justify extension of a remedy different from
or together with specific remedy sought' a general prayer is no longer broad
enough to justify extension of a remedy which is INCONSISTENT with the specific
allegation in the petition as in the case at bar. The case of Schenker vs.
Gemperk, L-16449, Aug. 31, 1962, 5 SCRA 1042 relied upon by the Court of
Appeal cannot, therefore, be made applicable to the case at bar, for the facts in
said case are far different from the one at bar. In the aforecited case, the
remedy extended is merely different from or together with the specific prayer
sought; in the case at bar, the remedy extended is INCONSISTENT with the
specific allegation and cause of action of respondent laborers' petition.

The cause of action of the respondent laborers is only for their alleged share
from November 1, 1955 and is further bolstered by paragraph 1 of their prayer
reading thus;
Declaring the applicability of the Victorias Mill District of the sharing
participation prescribed by Republic Act 809 for every crop year starting with
the crop year 1955-56
(EMPHASIS SUPPLIED)
With respect to the investment of the P4,000,000.00 in 40,000 shares of stock
of the Victorias Milling Co., Inc., no prejudice was really caused to the plantation
laborers because these shares of stock remained their property. It was never
claimed by the PLANTERS or by the Special Committee as theirs. It was only held
in trust for them by the Board of Trustees. (Art. 1448, New Civil Code). This was
not only a wise investment; it also earned a good return, for on the principal of
P4,000,000.00, its stock and cash dividends amounted to about P3,385,950.00
(p. 50, Decision). (Pp 69-97, PLANTERS' Brief.)
We have carefully scrutinized the foregoing arguments, supported as they are
by the pleadings on record as well as unexpurgated and unquestioned parts of
the transcript of the stenographic notes of the testimony of the FEDERATION's
principal witness, Mr. de Guia, in the light of the pertinent conclusions of the
Court of Appeals, and at this point, We are already apprehensive that said
conclusions can be said to be supported by such substantial evidence as would
preclude this Court from accepting them as unreviewable by this Court under
the general limitation of this Supreme Court in regard to findings of fact of the
Court of Appeals.
-C'This impression of Ours that the Appellate Court's above conclusions cannot be
said to be sufficiently grounded gathers added force when the following able
discussion of the same apparent misapprehension of the evidence by the
Appellate Court in the brief of VICTORIAS' ninth to eleventh (IX to XI)
assignments of error in its brief with Us is taken into account:
Ninth Assignment of Error

WITH REFERENCE TO THE AMOUNT OF P6,399,105.00 AND THE AMOUNT OF

P180,769.38, WHICH ACCRUED IN FAVOR OF THE LABORERS FROM JUNE 22,
1952 to OCTOBER 31, 1955 WHEN THERE WAS AS YET NO WRITTEN MILLING
AGREEMENT, IN VIEW OF THE FACT THAT THE LABORERS ADMITTED IN THEIR
PETITION THAT THE PLANTERS GAVE THEM THEIR LAWFUL PARTICIPATION
FROM JUNE 22, 1952 TO OCTOBER 31, 1955 AND THERE BEING, MOREOVER, NO
ALLEGATION OF ANY CAUSE OF ACTION RELATIVE THERETO, THE COURT OF
APPEALS ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION WHEN IT HELD
PETITIONER VICMICO AND THE PLANTERS JOINTLY AND SEVERALLY LIABLE VIA
TORT FOR SAID AMOUNTS.
Aside from adjudging petitioner VICMICO and the planters jointly and severally
liable for the money equivalent of 60% of the 4% increased participation of the
planters from November 1, 1955 to October 31, 1974, which amount would run
to tens of millions of pesos, a judgment that, as previously discussed, finds no
basis in law and in fact, the Court of Appeals likewise adjudged petitioner
VICMICO and the planters jointly and severally liable for tort for P6,399,105.00
and for P180,769.38, which sums pertained to the amounts that accrued in
favor of the laborers from June 22, 1952 to October 31, 1955, during which
period there was no milling agreement.
The Court of Appeals, in attempted justification of its aforesaid ruling, stated
that while FFF, et als. admitted in paragraph 10 of their petition that the
'planters gave to petitioners-laborers the latter's lawful participation in the
sugar production as well as in the by-products or derivatives thereof and
continued giving the same until November 1, 1955' (Par. 10, Petition of FFF et
als.), the FFF et als. in their brief filed before the Court of Appeals, 'explained
that what they meant ... was that their 6% share had actually been set aside
during the period from June 22, 1952 to October 31, 1955' (Decision, p. 61). The
Court of Appeals further stated that counsel for petitioner VICMICO allegedly
agreed that what happened to the P4 Million was a proper issue in this case'
(ibid., p. 62) and that the general prayer of FFF et als. 'for such other relief as
may be just and equitable under the premises is broad enough to justify
extension of a remedy not specifically sought' (ibid., p. 61 ).
Petitioner VICMICO respectfully submits that the justification advanced by the
Court of Appeals is untenable as we shall hereunder discuss and as shown by the
fact that the laborers did actually receive said amounts (Vide Exh. 23-VICMICO
or Annex I of VICMICO's Petition for Certiorari), as discussed at length in the
Tenth Assignment of Error.)

The FFF, et als. did not allege any cause of action in their petition concerning
their share from June 22, 1952 to October 31, 1.955, during the period when
there was as yet no written milling agreement; as a matter of fact, FFF et als.
expressly admitted receipt of their lawful participation pertaining to said period.
(emphasis supplied)
As previously noted, VICMICO and the planters did not have any written milling
Contract from Julie 22, 1952, when Republic Act 809 took effect, until October
31,1955 the last day prior to the written milling agreements' having become
effective. The amounts pertaining to the planters' laborers representing 60% of
the planters' increased participation, pursuant to the sharing proportion
prescribed in Section I of Republic Act 809, were expressly provided for in the
amicable settlement-compromise agreement ASCA executed between the
central and the planters.
The Court of Appeals, in its Decision (Annex Q to VICMICO'S petition for
Certiorari) declared the foregoing amicable settlement-compromise agreement
or ASCA to be valid and legal and not violative of Republic Act 809. (Vide, Annex
Q, p. 43) pursuant to the amicable settlement-compromise agreement, the
entire share of the planters' laborers was eventually delivered and distributed to
them ,the distribution having amounted to a grand total of P 6,536,741.98,
involving 474,811 laborers in five (5) distributions. (Vide Exh. 23 VICMICO or
Annex I hereof). FFF et als. expressly admitted receipt of all amounts pertaining
to the laborers during the period June 22, 1952 to October 31, 1955. Thus the
petition of FFF et als., reads in part:

same until November 1, 1955 when they ceased to do so until the present;'
(Vide Annex A to VICMICO's petition for certiorari.)
In view of the foregoing express admissions of et als., herein petitioner VICMICO
stated in its answer to the petition that the 'windfall bonuses, if any, given by
the adherent planters to their plantation laborers was the consequence of the
terms of the amicable settlement-compromise agreement arrived at between
respondent central and its adherent planters within the district in relation to a
then pending court case between them'. (Vide, par. 7 of Annex E to VICMOCO's
petition for Centiorari.) On the part of the planters, they averred that the
'windfall bonuses that respondent planters herein gave to their plantation
laborers ... are legal and valid and were the result or consequence of the terms
and conditions of the amicable settlement arrived at between the respondent
central and its adherent planters within the district ... (Vide Annex 'G' to
VICMICO's Petition for Certiorari.)
It is obvious that FFF, et als. did not allege any cause of action with reference to
those amounts which accrued in favor of the laborers from June 22, 1952 to
October 31, 1955) as they, in fact, admitted that the planters gave to petitioners
laborers the latter's lawful participation in the sugar production as well as in the
by-products or derivatives thereof and continued to give the same until
November 1, 1955. That FFF et als. did not allege ally cause of action relative
thereto is evident, the essential elements constituting a cause of action not
being present. There is a cause of action only if certain essential elements are
alleged in the petition. We quote:

A cause of action is an act or omission of one party in violation of the legal right
08.
That on June 22, 1952, Republic Act No. 809 otherwise known as the
of the others. Its essential elements are, namely: (1) the existence of a legal
Sugar Act of 1952, was enacted the pertinent provisions of which are as follows: right in the plaintiff, (2) a correlative legal duty in the defendant, and (3) an act
or omission of the defendant in violation of plaintiff's right with consequential
xxx
xxx
xxx
injury or damage to the plaintiff for which he may maintain an action for the
recovery of damages or other appropriate relief.' (Mathay vs. Consolidated Bank
9.
That at the time that the said Act went into effect, a majority of
& Trust Co., 58 SCRA 559.)
sugarcane planters of the Victorias Mill District had no milling agreements with
respondents CENTRAL.
While FFF et als. alleged that the laborers had the legal right to a certain
percentage share of the sugar produced from June 22, 1952 to October 31,
10.
That pursuant to Sec. 9 of said Act, respondent PLANTERS gave to
1955, they did not allege any correlative duty on the part of petitioner VICMICO
petitioners LABORERS the latter's lawful participation in the sugar production as to deliver those shares to the laborers, as said laborers, in fact, expressly
well as in the by-products and derivatives thereof and continued to give the
admitted that the planters, who had that exclusive correlative duty under
Section 9 of Republic Act 809 had already delivered to the laborers the latter's

lawful participation. Moreover, insofar as any amounts due the laborers during
the period when there was no milling contract are concerned, the petition of
FFF et als. did not allege any act or omission whatsoever, on the part of
petitioner VICMICO or on the part of the planters in violation of the laborer's
rights. There having been no allegation whatsoever of such a cause of action,
the Court of Appeals acted with grave abuse of discretion in nevertheless
adjudging petitioner VICMICO jointly and severally liable with the planters for
the amounts pertaining to the laborers during the period June 22, 1952 to
October 31, 1955.

raised by the parties, said Court of Appeals acted with grave abuse of discretion,
(Evangelista vs. Alto Surety and Insurance Co., Inc., 103 Phil. 40 1).

The Court of Appeals moreover contends (Vide Annex Q to VICMICO's Petition

for Certiorari, p. 61) that while the petition of the FFF et als., did not specifically
pray for recovery of the amounts pertaining to the period from June 22, 1952 to
October 31, 1955, their general prayer 'for such other relief as may be just and
equitable in the premises' is broad enough to justify extensions of a remedy
different from the specific amounts sought. While the phrase 'for such other
relief as may be just and equitable in the premises' may embrace all other reliefs
FFF et als. could not be permitted to controvert their express admission and any not specifically prayed for, only those reliefs which are alleged or supported by
proof contrary thereto or inconsistent therewith should have been ignored.
the allegations in the petition or the complaint can validly be adjudged. In the
(Underlining of emphasis supplied)
absence of any such allegation, as in the case at bar, no relief other than that
justified by the allegations and proof may be awarded. We quote:
It is a fundamental principle that an admission made in a pleading cannot be
controverted by the party making such an admission. We quote:
Moreover, to award damages in favor of petitioner Miguel Tolentino, Sr., and
against herein private respondents would violate the cardinal rule that a
Our decisions from Irlanda v. Pitargue, announced in a 1912 decision, to De
judgment must conform to and be supported by both the pleadings and the
Borja v. Vda. de Borja, promulgated in 1972, speak to that effect. It is a familiar proofs, and should be in accordance with the theory of the action on which the
doctrine according to Justice J.B.L. Reyes in Joe's Radio & Electrical Supply v. Alto pleadings were framed and the case was tried (secundum allegata et probata
Electronics Corp., 'that an admission made in the pleadings cannot be
)(Republic vs. De los Angeles, 41 SCRA 422, 450).
controverted by the party making such admission and are conclusive as to him,
and that all proofs submitted by him contrary thereto or inconsistent therewith, xxx
xxx
xxx
should be ignored, whether objection is interposed by the party or not (Santiago
vs. De los Santos, 61 SCRA 146, 149.)
The actuation of the trial court was not legally permissible, especially because
the theory on which it proceeded involved factual considerations neither
The explanation given by FFF et als. to the effect that what they meant by the
touched upon in the pleadings nor made the subject of evidence at the trial.
word 'gave' is that the laborers' share during the period was merely set aside for Rule 6, Section 1, is quite explicit in providing that 'pleadings are written
said laborers is not only a belated and forced explanation advanced only at the allegations of the parties of their respective claims and defenses submitted to
time FFF et als., filed their reply brief with the Court of Appeals under date of
the court for trial and judgment.' This rule has been consistently applied and
April 30, 1972, or almost ten years from the date said parties filed their petition adhered to by the courts.
on or about November 9, 1962, but is also contrary to the ordinary and
generally understood meaning of the word 'gave'. The matter is rather
The subject matter of any given case is determined ... by the nature and
substantial in the sense that it involves an amount representing millions of pesos character of the pleadings submitted by the parties to the court for trial and
which has not been treated as a cause of action in the petition of FFF et als., nor judgment. (Belandres vs. Lopez Sugar Central Mill Co., Inc., 97 Phil. 100, 103).
has it been specifically mentioned in their prayer. What was required of the FFF
was that they amend their petition, with prior leave of court, so that petitioner It is a fundamental principle that judgments must conform to both the pleadings
VICMICO as well as the planters could have directly met the issue. This
and the proof, and must be in accordance with the theory of the action upon
procedural requirement not having been complied with by the FFF et als. and
which the pleadings were framed and the case was tried; that party can no more
the Court of Appeals having proceeded to decide the case on certain issues not

succeed upon a case proved, but not alleged, than upon one alleged but not
proved. (Ramon v. Ortuzar, 89 Phil. 730, 742).
It is a well-known principle in procedure that courts of justice have no
jurisdiction or power to decide a question not in issue. (Lim Toco vs. Go Fay, 80
Phil. 166).
A judgment going outside the issues and purporting to adjudicate something
upon which the parties were not heard, is not merely irregular, but extrajudicial
and invalid. (Salvante vs. Cruz, 88 Phil. 236, 244).' [Lazo vs. Republic Surety &
Insurance Co., Inc. 31 SCRA 329, 334).]
Plaintiffs-appellants FFF et als. sought to bang up matters concerning the share
of the laborers from June 22,1952 to October 3l, 1955 not by way of recovery
thereof, as FFF et als. in fact admitted receipt of everything due, but merely by
way of pursuing their theory that the amicable settlement-compromise
agreement is allegedly null and void (Emphasis supplied)

I believe the objection is tenable because the supposed participation of the

laborers from the 40-60 sharing which was later on increased to 60-40 according
to that amicable settlement.
ATTY. SABIO:
This amicable settlement, Your Honor, we are trying to impugn it. (t.s.n. pp. 6466, December 15, 1967).
When counsel for plaintiffs-appellants FFF et als. was reminded that, pursuant
to his petition, FFF et als., had admitted receipt of what was due them prior to
November 1, 1955 and that said counsel could not introduce evidence which
would contradict said admission unless the petition would first be amended,
counsel for plaintiffs-appellants stated that he was not amending his petition, as
his purpose was only to pursue his theory that the milling contracts were null
and void. We quote:
ATTY. TIROL

When counsel for plaintiffs-appellants propounded questions to Mr. de Guia

concerning the alleged disagreement of the Department of Labor concerning
the procedure adopted in the disposition of the shares of the laborers, Atty.
Ditching, a planter, as counsel for himself and his wife, objected thereto on the
ground that, as per paragraph 10 of their petition, plaintiffs-appellants admitted
receipt of all of the shares up to October 31, 1955.

I think we are trying this case and not to impugn that document, whereas
compaero stated that there is an allegation in the petition that prior to
November 1, 1955, the planters have complied with the law . . . that is your
pleading. Are you going to amend your petition?
ATTY. SABIO:

Q You stated that your Department disagreed with the procedure adopted by
the Victorias Milling Co., Inc. and its planters in the disposition of the amount of
money due the laborers under Republic Act 809; and you also mentioned that
you have document in your possession of the objection of your Department to
such procedure; is that right?
ATTY. DITCHING:
We object to that because there is no necessity of bringing that point because
the petition itself admitted that the petitioners received their participation. lt is
here in paragraph 10 of the petition.
COURT:

We are not but paragraph 11 of the petition states: '11. That with evident intent
to evade compliance of said Act and to the grave prejudice of the laborers, some
of respondents PLANTERS and respondent CENTRAL prepared and executed a
General Collective Sugar Milling Contract sometime in March, 1956; and, that
adherence thereto, even as late as April 29, 1960, was made to retroact to
November 1, 1955;' This contract which we are trying to impugn was not
presented to court.
ATTY. HILADO, JR.
We doubt very much if counsel for the plaintiffs can give us reason why this
amicable settlement was not presented by the parties in court. In that case
then, granting that he can so prove his allegation, because the Victorias Milling
Co., Inc. under Par. 10 of the petition, states that up to October 31, 1955, the

laborers received their lawful participation under RA 809. This milling contract
was executed but that was after October, 1955 already. She cannot go against
his allegation.

That is not denied.

COURT:

The petitioners admitted that in par. 10 of petition, they have received their
lawful share up to November 1, 1955; so that question is immaterial.

ATTY. DITCHING:

Let us go to the question now so the ruling could be issued.

COURT:
ATTY. SABIO:
My question is the matter of document presented by the witness was not asked
by me but by Atty. Hilado Jr. So the document was mentioned by the witness.

The question asked is, with reference only to the procedure of the Department
of Labor.
ATTY. HILADO, JR.

ATTY. HILADO, JR.

Are they not in a position to ascertain all their allegations in the petition?
The Rules of Court says that, agreement of the parties could not be
contradicted.
ATTY. SABIO:

COURT:
The position of counsel for the plaintiff is that, he is trying to find out his
procedure that is being followed. Let the witness answer.

We disagree on the qualification of the fact.

Let us go to the question now. Proceed.

A.
Witness is showing a certain document which for purposes of
Identification has been marked as Exhibit HHHHHH-5 for the plaintiffs. It is a
Memorandum addressed to the Hon. Secretary of Labor by Mr. Ruben F. Santos
of the Wage Board Division.

ATTY. SABIO:

COURT:

You stated during the cross examination by Atty. Hilado Jr. That you have a
document in your possession to show that your office disagreed with the
procedure in the disposition of the money due to the laborer's share which was
made by the Central and the planters; where is that document now?

Q.
Why did your Department object to such arrangement of the planters
and Victorias Milling Co., Inc. referring to the disposition of increase
participation?

COURT:

ATTY. DITCHING:

A
. The only objection of our Department as stated in the memorandum is
the conversion of P4,000,000.00 into shares of stock.

Objection. In the pleading, par. 10 of the petition, the petitioners admitted that
they have received their lawful share up to November, 1955

Q.
So your objection is in the conversion into share of stock of certain
amount of dividend is that it?

COURT:

Yes, Sir, the memorandum in our office speaks for it .

(t.s.n., pp. 67-72, December 15, 1967).

(t.s.n., pp. 35-36, December 15, 1967.)

It is obvious that plaintiffs-appellants were not seeking recovery of what

pertained to them from June 22, 1952 to October 3 1, 1955, not only because
they admitted receipt of their shares corresponding to said period, but also
because Mr. de Guia likewise affirmed the laborers' receipt of the corresponding
share. While, according to Mr. de Guia, the Department of Labor disagreed
merely with reference to the initial conversion of the P4 Million into VICMICO
shares, said VICMICO shares were subsequently converted into cash and,
ultimately, distributed to the laborers who interposed no disagreements or
objection thereto, Mr. de Guia testified:

xxx

xxx

Q.

And there was no disagreement on that matter, correct ?

A.

Yes, Sir.

xxx

Q.
And there was no complaint from the laborers after the participation; is
that correct?

A.
There was none.
Q.
Is it not a fact that those shares of stock were sold and proceeds of your
distribution as indicated in your report was up to the 5th distribution made by
Q.
So that its distribution was accepted by all, including the laborers who
your office?
were the participants in this distribution; correct?
A.

Yes, Sir.

A.

There was none.

Q.
And as a matter of fact, with the sale of shares of stock, you realized
Q.
So that this distribution was accepted by all, including the laborers who
that not only the original amount of investment which correspond to the part of were the participants in this distribution; correct?
60% for the laborers but by more than million dividend; is that right?
A.
That is only within the period that is covered by the distribution.
A.
Yes, Sir.
(t.s.n., p. 53, December 15, 1967.)
Q.
Is it not a fact that the reason why after October 31, 1955 your office
did not distribute the windfall or bonuses because there had been milling
As a matter of fact, when Mr. de Guia testified that one planter did not allegedly
contracts that were signed by the management and the planters in the milling
distribute the share corresponding to his own laborers, Atty. Ditching, as
district?
counsel for himself and his wife, moved to strike out the answer of the witness
on the ground that the laborers, in their petition, admitted having received all of
A.
Yes, Sir.
their shares, and the trial court granted the motion. We quote from the
transcript:
Q.
Was there a report of your office with reference to the 5th distribution
of payments of money?
Q.
Of the 400 planters adhered to the Victorias Milling District, only one
planter has not distributed the corresponding participation of the laborers; is
A.
Yes, Sir.
that right?
Q.

Who gave the money?

A.

Yes, Sir.

A.

The planters.

ATTY. DITCHING:

I move for the striking out of the answer of the witness, it is admitted by the
petitioners themselves in par. 10 of the petition filed with this court on
November 9, 1962, which says: '10. That pursuant to Sec. 9 of said Act,
respondents PLANTERS gave to petitioners LABORERS the latter's lawful
participation in the sugar production as well as in the by-products and
derivatives thereof and continued to give the same until November 1, 1955
when they ceased to do so until the present.' So regarding the distribution, I
object to that because there was already an answer. I move to strike out with
respect to the answer because it will affect us.

at between the respondent Central and its adherent planters within the district
in relation to the pending court case between them.' (Vide, Annex E, Par. 7,
thereof, Petition for certiorari of Vicmico)
If there was any issue at an with reference to the P4,000,000 investment in
VICMICO shares, it was not an issue in relation to any cause of action filed by FFF
et als. to recover the proceeds thereof, as FFF. et als. never made such an
allegation and even expressly admitted receipt of said amount.
X

COURT:
Tenth Assignment of Error
Strike out that from the record regarding that one planter has not distributed
the participation of the laborers. It is enough that the Department of Labor have HAVING FOUND THE MILLING AGREEMENT AND THE AMICABLE SETTLEMENTthat in the record.
COMPROMISE AGREEMENT (ASCA) to be valid, THE COURT OF APPEALS ERRED
IN HOLDING THAT PETITIONER VICMICO AND THE PLANTERS HAD NO
(t.s.n., pp. 48-50, December 16, 1967).
AUTHORITY TO STIPULATE IN SAID ASCA ON THE DISPOSITION OF THE
AMOUNTS PERTAINING TO THE LABORERS FROM JUNE 22,1952 TO OCTOBER
The contention of the Court of Appeals that 'Counsel for central agreed that
31, 1955, THE PLANTERS BEING THE AUTHORIZED AGENTS OF THE LABORERS
whatever happened to the P4,000,000 was a proper issue in this case' (Annex Q, BY, AMONG OTHERS, HAVING RECEIVED ALL THE AMOUNTS DUE THEM,
p. 62) finds no justification. While counsel for VICMICO made the foregoing
HAVING MOREOVER RATIFIED SAID ASCA.
remark in the course of an exchange of manifestations with counsel for FFF et
als., said remark should be taken in the context in which it was uttered. Counsel The ruling by the Court of Appeals to the effect that the milling agreements and
for FFF et als. was requesting for records concerning the P4,000,000 invested in the ASCA are valid renders legally untenable its conclusion that the parties
VICMICO shares of stock, and counsel for VICMICO insisted that counsel for FFF thereto had no authority to provide for the disposition of the amounts
et. als. specify the documents being asked for (tsn, pp. 7 to 32, April 28, 1970). It pertaining to the laborers from June 22,1952 to October 31, 1955. (Emphasis
should be noted moreover that counsel for VICMICO objected to the
supplied)
presentation of evidence concerning the existence of any alleged fraud because
'there is no allegation to the effect that complaint and that should not be
The Court of Appeals, after a review of the records, "found no evidence of
brought in the rebuttal because that is improper. (tsn, pp. 14-15, April 28, 1970). circumvention" in the execution of the milling agreements and of the ASCA 'as
appellants (FFF et als.) charged.' (Decision, p. 41, Annex 'Q' to Vicmico's Petition
Moreover, the said statement of counsel of VICMICO was meant merely to
for Certiorari). It added that the 'contracts, therefore, which it (Vicmico) wrung
emphasize what VICMICO alleged in Par. 7 of its answer to the petition, which
from Planters are not in circumvention of the law but in legitimate pursuit of
Par. 7 reads as follows:
profit which is the end all and be-all of business. That Central (Vicmico), as a
result of the ASCA which appellants (FFF et als.) claim it (Central) to have
7.
That, being the mill company, respondent Central does not have
'engineered' got 36 % and Planters 64 % while the plantation laborers got
sufficient information so as to be able to admit or deny the truth of the
nothing, is no reason for considering the contracts a circumvention of the law
allegations of paragraph 10 of the petition; and it here further states that the
which does not in the first place interpose upon it any duty or require of it the
wind-fall bonuses, if any, given by the adherent planters to their plantation
performance of any obligation to yield any part of its participation in favor of
laborers was the consequence of the terms of the amicable settlement arrived
planters laborers. In other words, we do not find in Central's conduct anything

so odious or so obnoxious as to render the contracts it has entered into with

Planters illegal or repugnant to public policy.' (Ibid., p. 43). The Court of Appeals, In addition to the benefits granted by the Minimum Wage Law, the proceeds of
thus, declared 'the ASCA and the other derivative sugar milling contracts valid.' any increase in the participation granted the planters under this Act and above
(Ibid., p. 54)
their present share shall be divided between the planter and his laborer in the
plantation in the following proportion:
Notwithstanding its finding and conclusion that the ASCA and its derivative sugar
milling contracts were valid, the Court of Appeals stated that the Central and the Sixty per centum of the increased participation for the laborers and forty per
Planters had no authority to provide in the ASCA for the disposition of the
centum for the planters. The distribution of the share corresponding to the
amounts pertaining to the laborers from June 22, 1952 to October 31, 1955.
laborers shall be made under the supervision of the Department of Labor.
Thus, the Court of Appeals ruled in part:
The benefits granted to laborers in sugar plantations under this Act and in the
Central and Planters could stipulate whatever they might wish upon the share
Minimum Wage Law shall not in any way be diminished by such labor contracts
(P3,457,388.90) of Planters in the 'reserve how or when such share would be
known as "by the piece", "by the volume", "by the area", or by any other system
paid to the latter. After all they were the only contracting parties in the ASCA.
of "pakyaw", the Secretary of Labor being hereby authorized to issue the
But it was absolutely beyond the power and competence of either Central or
necessary orders for the enforcement of this provision.
Planters or both Central and Planters to stipulate upon the share
(115,186,083.34) of the plantation laborers in the 'reserve'. As though the share The above provision has constituted the planters the agents of their respective
of the plantation laborers were their own property, however, both Central and laborers with reference to any share to which they may be entitled from the
Planters, on March 5, 1956, sat down in judgment upon the question of its
increased participation of the planters granted under the Act. It is an agency
disposition. On that date, therefore, they both decided, in the ASCA, on how the created by law (Art. 1317, Civil Code). Accordingly, when the planters entered
laborers' share was to be disposed of. P4,000,000.00 was to be invested in
into the ASCA with the Central, they did so, insofar as the share of their laborers
shares of capital stock of Central, the balance of P1,186,083.34 to be distributed was concerned, as agents of their laborers and no authority was necessary from
among the plantation laborers " under the supervision of the Secretary of
the laborers because the planters had, by law, a right to represent them.
Labor". (Decision, pp. 48-49; Vide, Annex "Q" to Vicmico's Petition for
Certiorari.)
Moreover, the planters are the employers of their respective laborers; they
speak for their laborers in matters involving whatever percentage share the
The foregoing conclusion of the Court of Appeals is legally inconsistent with its
laborers would be entitled to from the increased participation of the planters
finding and ruling that the ASCA was legal and valid. A ruling that a contract is
granted under Republic Act 809. These laborers were so numerous (cf. Exh. 23valid presupposes that all the essential elements of a contract are present,
Vicmico) that only the respective planters who, under the law, are obliged to
namely: (1) consent of the contracting parties; (2) object certain which is the
prepare their payrolls, knew who they were. Hence, Vicmico has the right to rely
subject matter of the contract; and (3) cause of the obligation which is
on the representations of the planters relative to their laborers.
established. (Art. 1318, Civil Code). Consent presupposes legal capacity, that is,
that the Planters who entered into said ASCA on behalf of their laborers had
Moreover, the laborers ratified the ASCA by their silence for six (6) years and by
been authorized by the latter. (Tolentino, Civil Code of the Philippines, p. 407
their enjoyment of the benefits accruing therefrom. (Emphasis supplied)
[1956]; cf. Tolentino v. Paraiso, 34 Phil. 609 [1916]).
From November 5, 1956 when this Honorable Court dismissed the appeal of the
In any event the planters were the authorized agents of the respective laborers, laborers in G. R. No. L-11218 up to November 9, 1962 when the petition of FFF,
and Vicmico had the right to rely on that authority. (Emphasis supplied)
et als. was filed with the trial court, about six (6) years had elapsed. Within that
long period, the laborers never questioned the validity of the ASCA on the
Section 9 of Republic Act 809 reads:
ground that the Central and the Planters had no authority to provide for the

manner of preservation and distribution of their share corresponding to the

period from June 22, 1952 to October 31, 1955 when there was as yet no
written milling contract in the Victorias-Manapla-Cadiz mill district. They never,
within such period, filed any action to nullify the ASCA for lack of consent on
their part, notwithstanding their knowledge thereof, some of the laborers
having intervened in Civil Case No. 22577 (Exh. "H") and in G. R. No. L-11218,
where the question of validity of the ASCA and of the milling agreement was in
issue (Exhs. "VV", "VV-I", "VV-2").

contract is validly ratified, no action to annul the same can be maintained based
upon defects relating to its original validity. (Gutierrez Hermanos vs. Orense
[1914], 28 Phil. 571; Vales vs. Villa [1916], 35 Phil. 769.)' [Ten Ah Chan and
Kwong Kam Koon vs, Gonzales, No. 28595, October 11, 1928.)

Article 1317 of the Civil Code reads:

Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted (Art. 1313).

... . No one may contract in the name of another without being authorized by
the latter, or unless he has by law a right to represent him.

Article 1313 of the Old Civil Code cited by the Supreme Court in the Fable v. Yulo
case quoted above corresponds to Article 1396 of the New Civil Code, which
reads:

When FFF, et als. did file on November 9, 1962 a petition with the trial court,
they also did not question the authority of the Central or the Planters to
A contract entered into in the name of another by one who has no authority or provide, in the ASCA, the manner in which their share from June 22, 1952 to
legal representation, or who has acted beyond his powers, shall be
October 31, 1955 would be held and distributed. In fact, they expressly admitted
unenforceable, unless it is ratified, expressly or impliedly, by the person on
that the planters gave them their corresponding participation. We quote
whose behalf it has been executed, before it is revoked by the other contracting paragraph 10 of their petition:
party.
That pursuant to Sec. 9 of said Act, respondents PLANTERS gave petitioners
By their silence for six (6) years, notwithstanding their knowledge of the ASCA,
LABORERS the latters' lawful participation in the sugar production as well as in
the laborers are deemed to have ratified the contract. We quote:
the by-products and derivatives thereof and continued to give the same until
November 1, 1955 when they ceased to do so until the present; ... (Annex "A",
Nor has Concepcion directly impugned the validity of the obligation contracted Vicmico's Petition).
by her mother in her behalf and therefore it may be taken for granted that she
has by her silence ratified the obligation to pay, jointly with her mother and
Moreover, the laborers received the benefits of the ASCA when their share was
brothers, the sum her father owed when he died. (Art. 1313, Civil Code.)' (Fable distributed to them (Exh. 23-Vicmico; see also Eleventh Assignment of Error,
v. Yulo, 24 Phil. 240, 247 [1913], emphasis supplied.)
infra.) Their receipt of such benefits amounted to a ratification of the authority
of the planters to represent them in the ASCA. (Zamboanga Transportation Co.
On the contrary, the case comes squarely within the purview of the provisions of v. Bachrach Motor Co., 52 Phil 244; Ibanez u. Rodriguez, 47 Phil. 554; Tacalinar
the Civil Code under the subject of Nullity of Contracts which pertain to
v. Corro, 34 Phil. 889; Emphasis supplied)
ratification. Codal article 1309 provides: 'The action of nullity is extinguished
from the moment the contract may have been validly ratified.' Article 1311
XI
following provides: 'Ratification may be either express or implied. It shall be
deemed that there is an implied ratification when a person entitled to avail
Eleventh Assignment of Error
himself of any ground for the annulment of the contract should, with knowledge
of its existence and after it has ceased, do anything which necessarily implies an THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE LABORERS DID NOT
intention to waive such right.' Finally comes article 1313 which provides:
RECEIVE THE AMOUNT OF P6,399,105.00 AND IN HOLDING, ON THE BASIS OF
'Ratification purges the contract of all defects to which it may have been subject TORT, PETITIONER VICMICO, JOINTLY AND SEVERALLY LIABLE WITH THE
as from the moment it was entered into'. It results, therefore, that after a
PLANTERS THEREFOR, EXHIBIT 23-VICMICO CLEARLY SHOWING ON ITS FACE

THAT THE LABORERS ACTUALLY RECEIVED A TOTAL OF P6,536,741.98 AND THE

COURT OF APPEALS HAVING FOUND THAT ALL AMOUNTS PERTAINING TO THE
LABORERS HAD BEEN RECEIVED BY THE PLANTERS. THE FOREGOING
DEMONSTRATING, AMONG OTHERS, THAT PETITIONER VICMICO CANNOT BE
ACCUSED OF ANY TORTIOUS ACT.
The conclusion of the Court of Appeals to the effect that the laborers received
only Pl,186,083.34 and not the whole amount of P6,399,105.00 has no basis in
fact, the evidence as testified to by a representative of the Labor Department
being to the contrary.
Notwithstanding the express admission in the petition of FFF, et als., to the
effect that the 'Planters gave petitioners (FFF, et als.) the latter's lawful
participation in the sugar production and derivatives thereof and continued to
give the same until November 1, 1955, when they ceased to do so until the
present' (Par. 10, Petition of FFF, et als., filed with the trial court, Vide Annex "A"
to Vicmico's Petition for Certiorari), which fact, having been admitted, requires
no proof and cannot be contradicted (Rule 129, Sec. 2, Rules of Court; Sta. Ana
v. Maliwat, 24 SCRA 1018), the Court of Appeals made the following unfounded
statements:
... if it is further considered, as shown in our resolution of the third issue, that
this amount of P4,000,000.00, along with its accruals was never received by the
plantation laborers to this day, the unwisdom of the investment, let alone, its
illegality, is hardly in doubt.' (p. 52, Decision, Annex "Q" to Vicmico's Petition for
Certiorari).
xxx

xxx

xxx

... and the fact that the laborers' P4,000,000.00 worth of shares and their
earnings have, without any explanation from anyone from the Central, from the
Planters, or from the Special Committee vanished into limbo without the
laborers being able to actually receive any cent of the same.' (Idem., p. 53).

xxx

xxx

xxx

The evidence shows that, except for a small part (P180,679.38) of the sum of
P5,185,083.34, the entire P1,186,083.34 was actually paid to the laborers ...'
(Idem, p. 55; Annex "Q" to Vicmico's Petition for certiorari
xxx

xxx

xxx

Not a shred of evidence, however, has been introduced into the record to show
that the proceeds of the sales of the 40,000 shares of stock and the increments
in cash and stock dividends have been actually delivered to or received by
appellants-laborers. ... ' (Annex "Q"to Vicmico's Petition for Certiorari, p. 60).
None of the foregoing statements finds any basis in fact and the Court of
Appeals' unwarranted conclusions constitute a grave abuse of discretion
tantamount to an excess of jurisdiction. (Duran v. Court of Appeals, L-39758,
May 7, 1976). Mr. Felipe de Guia testified lengthily on the point, but the Court
of Appeals apparently was oblivious of his testimony which established
distributions of over P 6,000,000.00 in favor of the laborers. We quote the
testimony of Mr. de Guia:
Q.
Mr. Guia, what steps, if you know the Department of Labor has taken . .
. I withdraw the question.
Q.
As Chief of the Agricultural Wages Section under the Department of
Labor, do you know what steps your section of the Department of Labor has
taken to implement Section 9 of RA 809, otherwise, known as Sugar Act of 1952,
with the Victorias Milling District, Negros Occidental?
A.
Yes, sir, we have distributed also the supposed share of the laborers
amounting to P6,717,360.00. (emphasis supplied).
COURT:

xxx

xxx

xxx

In effect, what has been established by the evidence is that the P4,000,000.00,
together with its earnings in dividends in the total amount of P3,385,950.00 (p.
6, tsn.. June 16, 1970), has not been distributed to or received by plaintiffsappellants-laborers. (Idem., p. 62).

Q.

When was that distribution made?

A.

It was made in the year 1995. Proceed.

ATTY. SABIO:

Victorias Milling District, wherein 60% represent this said amount; otherwise,
This distribution covered the period from June 22, 1952 to what period? 60% of the 10% increase participation represented the said amount which was
distributed among the laborers of the Victorias Milling District.
A.
To October 31, 1955.
Q So, P 5,186,183.36 was 60% of 10% was the increase participation of the
Q.
Will you kindly tell the Court the basis of the distribution of the amount planters within the Victorias Milling District, for the period from June 22, 1952
distributed?
to October 31, 1955; is that right?
Q.

A.
As I understand, this amount was the participation due to the laborers
working in that milling district, from June 22, 1952 up to October 31, 1955
(Emphasis supplied).

A.
Yes, sir. (pp. 17-21, December 15, 1967, Lorenzo C. Caraig; emphasis
supplied)
xxx

xxx

xxx

COURT:
ATTY. SABIO:
Q.
A.

June 22 of what year?

June 22, 1952 to October 3l, 1955. Proceed.

Q
Do you have in your possession the record on how this amount of
Pl,186,083.34 marked as Exhibits 'XXX' thru XXX-6

ATTY. SABIO:

Yes, sir.

Q.

Under what law that is due to them?

Q.

Would you be able to bring that next time?

A.

RA 809, otherwise known as Sugar Act of l952.

A. I think so.

Q.
By the way, Mr. Guia, what Section or Division of the Department of
Labor is embodied the implementation of RA 809?

Q.
Would you be able or do you have in your possession a record showing
how this amount of P4,000,000.00 marked as Exhibit XXX-10 was disposed of?

A.

A.
Not with the P4,000,000.00 because the distribution of this amount was
made in five releases as per what is stated in the statement as presented here.

The Agricultural Wage Section of which I am the Chief.

ATTY. HAGAD:
CROSS EXAMINATION:

Q.
At any rate, my question is: Do you have in your possession the record
of the distribution of the P4,000,000.00?

Q.

A.

How was this amount of P9,612,421.36 distributed?

A.
The original amount which is supposed to be distributed is
P5,186,083.36; but on account of converting the 4,000 shares of the laborers'
share of stock, it was distributed continuously year to year. The dividends
amounted to more than Pl,000,000.00 which is added to this amount. It was
based practically on the 10% increase participation due to the planters of the

Yes, sir. (pp. 143-144, June 16, 1970, L. Caraig; Emphasis supplied).

COURT:
What is the purpose now of Atty. Sabio in presenting those records?
ATTY. SABIO:

The distribution of P5.186,083.34.

We will show that not only a portion of the amount of P5,186,083.34, including
of course the earnings, was distributed that properly belong to the laborers.
COURT:
Why not find out from Mr. de Guia the record about the distribution how much
was distributed?
WITNESS:
Atty. Sabio, I just want to clarify your statement the distribution I personally
handled, I want that to be corrected. If you will allow me, sir, If Mr. Bascug can
recall that in our distribution from the first to the fourth I think each and
everyone of them even their members could really testify to the effect that the
distribution was orderly undertaken just want to put that on record. There
should be no insinuations, with due tolerance, being the supervisor of the
distribution.

WITNESS:
In order to facilitate all those records in bringing here, can I request Atty. Sabio
any personnel that can accompany me. Because the records are so voluminous.
For one distribution of one planter there are no less than 28 pages and there are
five distributions. So I am requesting Atty. Sabio to give me an assistant to come
as well as bring the records and I am willing to bring all those records because I
have nothing to hide, It is also shown that there are those laborers who were
not able to receive and it is stated in the undistributed amount.( t.s.n., pp. 151154, June 16, 1970, V. Salvarino, italics supplied).
On cross examination, this witness further testified thus:
ATTY. HAGAD:
Q
My question Mr. be Guia is this, the figures referred to in Exh. 23
Victorias Milling Co., Inc. came from the records of your office, is that correct ?

ATTY. SABIO:
A.
We do not make any insinuation. We only want the record. In the interest of all
concerned and in the interest of justice, if the records will be brought here we
hope that the records are not irregular and we believe if they are regular no
responsibility would be incurred by any official of the Department of Labor.
WITNESS:
Which are you referring to, Atty. Sabio?
ATTY. SABIO:
Any official of the Department of Labor.

Yes sir.

Q.
Exh. 23 mentioned first, second and up to the fifth distribution. What do
you mean by this?
A.
There are distributions undertaken in the Victorias Milling Co., Inc. The
first distribution as stated here is in accordance with the number that is
corresponding to the amount distributed or release for distribution among the
laborers of the Victorias Milling Co., Inc.
Q.
By first distribution you are referring to the Amicable SettlementCompromise Agreement the amount of P 1,166,083.36 and this correspond to
the same amount indicated in the Amicable Settlement-Compromise Agreement
you also Identified; is that correct?

WITNESS:
What charge of irregularity.

A.
I do not know exactly if this figure stated there is correct but I have to
check whether it tallies with it.

ATTY. SABIO:

Q.

Which figure is reflected in Exh. XXX and Exh. XXX-9?

A.

There is a difference of 2 centavos.

Q These other distributions that you made, were those also done under your
supervision beginning from the second up to the fifth distribution'?
A.
(Correction, please). I was not the one who made the distribution; I was
only concerned on the first distribution which was supervised.
Q.
As first of the team of supervisors, you supervised the actual delivery of
the money to laborers; is that correct?
A.

Yes, sir. (t.s.n., pp. 20-22, June 18, 1970; Lorenzo Caraig).

The above testimony of Mr. de Guia clearly demonstrates that the laborers
received their entire share corresponding to the period from June 22, 1952 to
October 31, 1955 when there was as yet no written milling contract between
the Central and the Planters.

A.
Yes, sir, P180,679.38. (t.s.n., p. 28, June 18, 1970; Annex 'Q' to Vicmicos
Petition for Certiorari, p. 55).
Apparently giving full credit to the foregoing testimony of Mr. de Guia, the Court
of Appeals, in the dispositive part of the decision, ordered the Central and the
Planters, jointly and severally, to pay the laborers '(1) the sum of P180,679.38,
not distributed to appellants, with interests thereon at 6% per annum
commencing from February 19, 1957, until fully paid'. (Decision, pp. 68-69;
Annex 'Q' to Vicmicos Petition for Certiorari). But Exh. '23' which was the basis
of Mr. de Guia's testimony to the effect that there was an undistributed amount
of P 180,679.38 (t. t.s.n., p. 28, June 18, 1970) clearly shows that P6,536,741.98
was distributed in favor of the laborers, with only P 18O,679.38 remaining
undistributed. Exh. '23' reads:
Republic of the Philippines
Department of Labor

Exh. 23-Vicmico which summarizes the amounts received by the laborers

totalling P6,536,741.,98 (except for the sum of P180,679.38) having been relied
upon in part by the Court of Appeals when it required payment of P180,679.38
to the laborers, the whole contents thereof deserve full credit, namely, that the
laborers received the total amount of P6,536,741.98. (emphasis supplied)

BUREAU OF LABOR STANDARDS

The Court of Appeals, quoting the testimony of Mr. Felipe de Guia, stated in
part:

Victorias Milling Districts

Manila
Statement of Windfall Distributions of the

Victorias, Negros Occidental

The evidence shows that, except for a small part (P 180,679.38) of the sum of P
5,185,083.34, the entire P 1,186,083.34 was actually paid to the laborers. Thus,
testified witness Felipe de Guia, representative of the Department of Labor in
charge of the distribution:

As of June 30, 1967

AMOUNT RELEASED FOR DISTRIBUTION:

COURT:

1st Distribution .........................P1,186.083.36

Q.
Mr. de Guia, you said that there were some amounts that were not
distributed because some laborers cannot be located; is this the amount
mentioned in this 'Exhibit 23', under the words 'amount of undistributed or
wind-fall?

2nd Distribution ..........................1,841,338.00

3rd Distribution ..........................1,390,000.00
4th Distribution ..........................1,100,000.00

5th Distribution ...........................1,200,000.00 P6,717,421.36

(Sgd.) ROM J. MALACON

AMOUNT PAID BY DISTRIBUTOR:

Explaining the distribution appearing in Exhibit '23', Mr. de Guia testified:

1st Distribution ............................P1,162,040.79

Q.
As first of the team of supervisors, you supervised the actual delivery of
the money to the laborers: is that correct ?

2nd Distribution .............................1,815,326.40

A.

Yes, sir.

3rd Distribution ..............................1,357,067.88

4th Distribution ...............................1,059,895.05

Q.
In other words, you went to the haciendas and gathered all the laborers
and gave the corresponding amount to the laborers; is that correct ?

5th Distribution ...............................1,142,411.86 P6,536,741.98

A.

AMOUNT OF UNDISTRIBUTED WINDFALLS BY DISTRIBUTION:

Q.
And before that distribution, your supervisor inquired if all those
payrolls are prepared by the respective planters concerned; is it not?

Yes, sir.

1st Distribution .................................P 24,042.57

A.

Yes, sir.

2nd Distribution ...................................26,011.60

3rd Distribution ...................................32,932.12
4th Distribution ....................................40,104.9,5
5th Distribution .....................................57,588.14 P 180,679.38
LABORERS PAID BY DISTRIBUTION:

Q.
And your obligation is to check the payrolls regarding the names of the
laborers and the amount indicated in the payrolls; is that correct ?
A.
Not necessarily check the individual names appearing on the payrolls
but also verify whether the amount released to be distributed tally with the
amount appearing on the payrolls.
Q What about the actual payment of the amount to the laborers, were you
present there?

1st Distribution .....................................96,229

A.

Yes, sir.

2nd Distribution.................................... 97,170

3rd Distribution .....................................95,411
4th Distribution .....................................93,747
5th Distribution .....................................92,254 474,811
Respectfully submitted:

Q.
So that, in all those distributions reflected in this Exhibit '23' - Victorias
Milling Company' Inc. either you or the member of your team or any
representative of the laborer see to it that the money is delivered to the
laborers concerned; is that correct'?
A.
Yes, sir, that is the duty of the supervisor to see to it that the
corresponding amount is actually received by the laborers.

Q.
And you keep that record in the course of the distributions; is that
correct?
A.

Yes, sir.

cannot be deemed strictly binding upon it, is a significant persuasive factor We

have to count with in deciding the particular issue of fact now under discussion.
In our opinion, there is hardly anything in the FEDERATION'S main and reply
briefs cogent enough to convince Us contrariwise.

Q.
If I correctly get, there would be about 20,000 payrolls of the planters in We wish to make it clear that in connection with said issue, We have not
the haciendas; is that correct'?
overlooked the laudable principles and guidelines that inform both Republic Act
1257, the charter of the agrarian courts, and Presidential Decree 946, both of
A.
I can say that there are some planters who have 15 to 50 sheets of
which prod the courts to be as liberal as possible in disposing of labor cases and
payrolls of the haciendas: so you can just imagine the number of payrolls of the to be ever mindful of the constitutional precept on the promotion of social
haciendas.
justice, (Sec. 6, Art. II, Philippine Constitution of 1973) and of the rather
emphatic injunction in the constitution that "the State shall afford protection to
(T.s.n., pp. 22-25, June is, 19-10).
labor. " 3 But We have are of the considered opinion that the secondary force to
which the ordinary rules of procedure and evidence have been relegated by the
Since the Court of Appeals relied upon the foregoing Exhibit '23' in its finding
aforementioned agrarian court laws do not oblige Us to be unjust and unfair to
that the sum of P180,679.38 had not been distributed, that exhibit should not
employers. After all, in the eyes of all fair-minded men, injustice to the more
have been segregated in parts with the Court having chosen that portion which affluent and fortunate sectors of society cannot be less condemnable and
afforded advantage to the laborers and disregard the other parts which were to reprehensible, and should be avoided as much as injustice to labor and the poor.
the advantage of the Central and the planters. (cf. inter alia, Orient Insurance
It is divinely compassionate no doubt to afford more in law those who have less
Co. vs. Revilla, 54 Phil. 919. where it was held that when a party introduces in
in life, but clear injustice to anyone amounts definitely to injustice to everyone,
evidence part of the privileged document, he cannot remove the seal of
and all hopes for judicial redress for wrongdoings would vanish, if the even hand
confidentiality as makes for his advantage and insist that is previleged as to so
of law, justice and equity were to be made to favor anyone or any group or level
much as makes for the advantage of his adversary). The whole contents of Exh. of society, whoever they maybe. It is verily not an exaggeration to assert that in
'23' should therefore be given full weight and credit, namely that P6,536,741.98 a sense, courts that uphold and afford real justice can hold back and even repel
had been actually distributed in favor of the laborers. (VICTORIA'S Brief, pp. 286- the forces of malcontent and subversion more effectively and without loss of
336, G.R. No.
lives and blood and without destruction or devastation than the best equipped
L-41222).
regiments of soldiers of the army. Justice, in its real and deepest essence, more
than statute law must always prevail, and the courts are inexorably expected to
-Ddo justice to every men at all times. This Supreme Court yields to no one in that
respect. That is its sacred duty and its sworn pledge that will remain unbroken
True it is, as already stated earlier, that in petitions for review of decisions of the ruat caelum
Court of Appeals, well and long settled it is that We are as a rule bound by its
findings or conclusions of fact. In the instant cases, however, after carefully
-Econsidering its ratiocination and bases in finding that the share of the laborers in
the proceeds of the 1952-53 to 1954-55 crop years, and after mature study of
Thus, while We are in agreement with the Court of Appeals in its construction
and searching deliberation on the arguments and authorities very
and application of Sections 1 and 9 of Republic Act 809 as discussed above, We
comprehensively advanced and cited in the briefs of the PLANTERS and
cannot agree with its conclusions regarding the pretended liability of the
VICTORIAS in the portions thereof extensively quoted above, We find Ourselves PLANTERS and VICTORIAS for the amount that the FEDERATION claims the
sufficiently convinced that the clear and unequivocal admission of such payment laborers of the PLANTERS have not been paid as their share of the proceeds of
in the FEDERATION'S original and amended petitions in the trial court, if it
the crop years 1952-53 to 1954-55. In resolving in the manner We have quoted,

the second issue formulated by it relative to the appeal to it of the FEDERATION,

it holds the appellees, the PLANTERS, including petitioners herein Primo Santos
and Benjamin Tirol, and VICTORIAS "jointly and severally liable for tort in
disposing, upon their own accord, and without any authority of the plantation
laborers, of the money of the said laborers in the total amount of P5,186,083.34
and thus causing the loss of shares of stock and their earnings purchased out of
P4,000,000.00 of such amount." Indeed, in the course of resolving the second
issue and in disposing of the third issue, the Appellate Court found the
PLANTERS and VICTORIAS guilty of misappropriation and conversion of the
P5,186,083.34 plus the accrual thereof, corresponding to P4 M worth of
VICTORIAS shares of stock which under the ASCA was stipulated to be received
by the PLANTERS in trust for the laborers.

Appellants themselves, in their brief, have made the following observations:

So, it can be assumed without fear of contradiction that the last portion of the
said amount of P1,186,083.34 was delivered, if ever, to PLANTERS-APPELLANTSLABORERS after February 18, 1957. (Appellants' Brief, p. 326) (VICTORIAS' Brief,
pp. 65-66, Appendix 'A', G. R. No. L41222.)
There is no explanation anywhere in the records as to what happened
subsequently to the shortage of P180,679.38, and We, therefore, agree with the
Court of Appeals that judgment should be rendered for the payment thereof,
there being no dispute that the said amount has not been received by the
laborers.

Again, this aspect of these instant cases before Us involve questions both of fact -Gand of law.
We find it difficult, however, to subscribe to the finding of the Court of Appeals
-Fthat the greater portion of the P5,185,083.34 in cash and in shares of stock of
VICTORIAS was not received by the laborers and was instead malversed and
At this juncture, and referring first to the issues of fact, let it be clear that We
misappropriated by the PLANTERS and VICTORIAS.
find from the record as found by the Court of Appeals, of the cash portion of
P5,185,083.34 corresponding to the laborers pursuant to the ASCA, namely,
To start with, We have to state again that the petition that initiated the instant
P1,185,083.34, what actually the laborers received under the supervision of the cases before Us was filed only under date of November 9, 1962 with the Court
representative of the Secretary (now Ministry) of Labor, was short only by
of Agrarian Relations in Bacolod City, that is to say, more than six years after the
P180,679.38 per the testimony of Mr. Felipe de Guia, the representative of the execution of the ASCA on March 5, 1956 and the subsequent payment and
Department of Labor:
transfer of shares pursuant thereto had been factually accomplished. The
inaction of the laborers for such a long space of time cannot but cast shadows of
The evidence shows that, except for a small part (P180,679.38) of the sum of
doubt as to the truthfulness of their claim, considering particularly the hugeness
P5,185,083.34, the entire P1,186,083.34 was actually paid to the laborers. Thus, of the amount involved, which anyone aggrieved would lose no time to move to
testified witness Felipe de Guia, representative of the Department of Labor in
recover, specially if one takes into account the value of the Philippine peso
charge of the distribution:
during said period.
COURT:
Q.
Mr. de Guia, you said that there were some amounts that were not
distributed because some laborers cannot be located; is this the amount
mentioned in this Exh. '23', under the words 'amount of undistributed or
windfall"?
A.

Yes, sir, P180,679.38 (tsn. p. 28, June 18, 1970)

Second, and indeed rather importantly, the said initial petition made no
reference whatsoever to the now pretended non-payment, but, on the contrary,
as well shown and argued by the PLANTERS and VICTORIAS in the portions of
their respective briefs We have quoted above, such payment was not only
admitted in said petition as well as in the amended one filed in March, 1964,
both of which referred exclusively to the laborers' share in the 1955-56 to 197374 crop years but even in the prayer portions thereof. What is more, as will be
presently discussed, the payment in question appears proven by the evidence
both oral and documentary submitted to the trial court.

Of course, We must say again, as a general rule, in petitions for review of

decisions of the Court of Appeals, this Supreme Court is bound by the findings of
fact of that Court and that We are limited only to any inquiry as to whether or
not its decision predicated on its factual conclusions is in accordance with law. In
these cases at bar, however, the factual matter of whether or not the laborers
had already been paid their share corresponding to the 1952-53 to 1954-55
crop years is being laid before Us inextricably intertwined with a question of law
arising from the indisputable fact that in the initial pleadings below what is
manifest is not only that there is an express admission in paragraph 10 of the
petition of the laborers "that pursuant to Section 9 of said Act (R.A. 809),
respondent planters gave petitioners-laborers the latter's lawful participation in
the sugar production as well as in the by-products and derivatives thereof and
continued to give the same until November 1, 1955 when they ceased to do so
until the present" but even in the prayer thereof, the FEDERATION confined the
remedy it asked for to the payment of the laborers' share in the proceeds of the
crop years after 1954-55 and up to 1973-74. We cannot conceive of a more
emphatic and unequivocal words to convey the admission of the payment here
in question.

filed its initial petition below in November of 1962, whereas the record shows
indisputably that the payments and transfer of shares had already been made
more than five years before. And as regards the rather naive acceptance by the
Court of Appeals of the explanation of the FEDERATION, We hold that it was
legally improper to do so, it appearing that such explanation was made,
according to the brief of the PLANTERS, very much belatedly, only in the
FEDERATION'S reply brief in that court at page 1446 thereof, without any hint as
to why it was not made earlier in the trial court, where it appears that
FEDERATION had even filed an amended petition in 1964. Besides, there was no
allegation of mistake; all that was done was to unconvincingly attribute a
different subjective meaning to a word that is clear and unmistakable in itself,
by explaining that what the pleader wished to convey by the word "given" was
that the corresponding amount due that laborers had already been placed in
reserve by the central.

The Court of Appeals further tried to sustain the Federation by citing Section 5
of Rule 10 of the Rules of Court authorizing the courts to decide cases on the
basis of evidence on matters not alleged in the pleadings. In the first place, the
cited rule applies only when the evidence on which the court would rely is
presented without objection of the adverse party, since they would then
We are now asked to rule on the legal effect of such admission in the light of the correspond to issues "tried by express and implied consent of the parties." Here,
other circumstances extent in the record.
however, the record shows that the PLANTERS and VICTORIAS vehemently
objected to any evidence touching on the 1952-53 to 1954-55 crop years,
In that connection, there appears no alternative for Us than to rule that as
precisely because of the explicit admissions contained in the plaintiff
contended by the PLANTERS and VICTORIAS, under the law, even if liberally
FEDERATION'S petition. This is not, however, to ignore that nevertheless, the
applied, such admission should be considered as having some persuasive force, record shows that somehow both parties did present evidence touching on such
unless it was made through palpable mistake or misapprehension of the
payment. But judging from what such evidence consisted of, as reproduced in all
relevant circumstances. And what makes such admission more credible is the
the briefs before Us, We are fully satisfied that the findings and conclusions of
fact that not one single laborer was presented at the trial to deny that he had
fact of the Court of Appeals on the point at issue do not square with such
received his due share.
evidence. To cite just one example, the testimony of the principal witness of the
Federation, Atty. de Guia is more indicative of the complete and full payment in
The Court of Appeals has attempted to extricate the laborers from their
question than otherwise. For another instance, the ruling of the Court of
lamentable predicament by accepting the explanation of counsel for the
Appeals that Exhibit 23 VICMICO is inadmissible because it is merely secondary
FEDERATION that what the above-quoted paragraph actually was intended to
evidence is, in Our view, erroneous, considering not only that the trial court was
mean was that VICTORIAS had only reserved the corresponding amount in the
informed by Mr. de Guia himself that the original documents are so voluminous
liquidation of the share of the planters in the proceeds during that period. Quite as to make it impracticable to take them to the court, but also that it was
misleadingly, to be sure, the FEDERATION argues in its brief that they could not precisely on the basis of said exhibit that that court made the finding of a
have made such a factual admission since at the time their petition was
shortage of P180,679.38 in the cash payment, not to mention the obvious fact
prepared and filed, the money was still with the central. How false such a
that the same witness actually made continuous reference to said exhibit while
pretension is can be readily perceived by merely recalling that the FEDERATION he was explaining the distribution of the full amount due the laborers. The

contention of the Federation that said exhibit is a worthless piece of paper is an

exaggeration that cannot hold water. In fact, no one pretends it is a mere
fabrication, being part of the records of the Department of Labor. Of course, it is
possible, as Mr. de Guia claimed, that he did not know of the actual issuance,
sale and proceeds of sale of the 40,000 shares of stock, but the fact remains that
it was he himself who referred to said documents with notable degree of
certainty, at the start, and it was only later in his testimony that he disclaimed
personal knowledge of the truth of its contents.

authorized triers of facts as evidence of the highest order. To obviate their

effect as such, there must be potent and cogent considerations that are as
equally convincing to the mind as the compulsive persuasiveness of a man's
statement or declaration against his own interest. In the cases at bar, We are
satisfied, We regret to say, that the FEDERATION has failed to provide Us with
anything but pleas for emotional sympathy to enable this Court to pay little
heed to or much less ignore the persuasive force of its written formal admission
that their members have already been given and "continue to be given" their
due legal share of the proceeds of 1952-53 to 1954-55 crop years in question
Thirdly, insofar as the joining of issues in regard to the point under discussion,
except for the amount of P 180,679.38. lt is Our conclusion from such admission
by the PLANTERS and VICTORIAS, on the one hand, with the FEDERATION, on
and the evidence supporting the same, and more particularly from the absence
the other, in their briefs filed with the Court of Appeals, it is understandable that of contrary evidence duly presented by the FEDERATION at the trial, that the
the PLANTERS and VICTORIAS had no alternative than to do so as a matter of
truth is what said admission expressly declares.
defense, even as they maintained all the time it was not a proper issue and was
beyond the jurisdiction of the Court of Appeals to consider. Moreover, it is quite - H obvious that the cited provision is by its very nature and context applicable only
in trial courts and not in the Appellate Courts. 4 What is more, it bears
With the matter of the cash payment thus resolved, We may now turn Our eyes
repeating, there was actually no allegation of mistake here; all that was done by to the Four Million (P4M) Pesos worth of shares of stock of VICTORIAS which,
the FEDERATION was to unconvincingly attribute to the word "give" another
under the terms of the ASCA, were stipulated to be issued to the PLANTERS or
meaning convenient and suitable to its purposes, casting aside the obvious fact their authorized Special Committee or Board of Trustees in trust for the benefit
that said word is clear and unmistakable in itself. Moreover, it appears that said of the laborers. In regard to this matter, there are, as We view the situation, two
purported explanation was made only in its reply brief, by way of argument
controversial issues to be settled, namely, first, whether or not, it was proper for
unsupported by any scintilla of relevant evidence presented in the court below. the PLANTERS and VICTORIAS to provide for such manner of payment to the
laborers instead of in cash, and, second, disregarding the matter of such alleged
Perhaps, We may emphasize again that We are not unaware that We are
impropriety, whether or not said shares or the proceeds thereof were received
dealing with a review of a decision of the Court of Appeals in an appeal from a
by the laborers.
case which originated in the Court of Agrarian Relations in Bacolod City and that,
therefore, We are not supposed to adhere strictly to the tenets regarding
For obvious reasons, We have to deal with the second issue ahead of the other.
evidence of the Rules of Court, but must be guided as liberally as possible in
And in this respect, suffice it to say that the question of whether or not the
favor of the laborers in searching for the true facts upon which their claim is
proceeds of the VICTORIAS shares of stock corresponding to them under the
based, having in view Republic Act 1257 and Presidential Decree 946 and more ASCA had been actually received by them from their respective planters has
imperatively, the constitutional provisions on social justice and protection to
already been resolved by Us above not only as necessarily included in the
labor. But, as can be seen, it is indeed in the light of these principles that We
binding force of the admission of the FEDERATION in its original petition and
have scrutinized the reasoning and argumentation of the Appellate Court. We
amended petitions below but as proven by overwhelming evidence overlooked
reiterate, at this point, that observing the Rules of Court only secondarily per
apparently by the Court of Appeals. To be clearer, contrary to the finding of the
mandate of Republic Act 1267 and Presidential Decree No. 946 does not, in Our Court of Appeals, We hereby hold that the proceeds of all the P 4M worth of
considered opinion, preclude the Courts of Agrarian Relations and the Appellate VICTORIAS shares corresponding to the laborers under the ASCA were not only
Courts, from applying long established principles in judicial fact finding that are received in the form of shares by the PLANTERS from VICTORIAS but that the
founded on reason and the common sense and experience of mankind.
proceeds of the sale thereof by the Board of Trustees, together with their
Admissions, specially if express, have always been universally considered by all
accruals, were actually received by the laborers from their respective planters-

employers. We reiterate that not a single laborers had testified to the contrary.
Additionally, Chairman Newton Jison testified positively to such effect.
With the foregoing conclusion, it is hardly of any consequence for Us to discuss
what the Court of Appeals, breathing, as it were, with evident indignation and a
stirring sense of reprobation, condemned to be an unauthorized and improper
act of the PLANTERS and VICTORIAS of planning, so to speak, and agreeing just
between the two of them how the share of the laborers of 6% of the proceeds
from 1952 to 1955 should be paid. Inferentially, if not directly, the Appellate
Court found that the payment partly in cash and partly in shares of stock could
have been done and should have been done only upon consultation with and
with the consent or assent of the laborers either thru the FEDERATION or any of
their authorized representative. We can admit that indeed that would have
been most Ideal to do. Actually, however, what happened was not exactly that
way. Just the same, We shall proceed to show that the laborers were never at
the short end of the bargain. The pertinent portions of the ASCA read as follows:
(a) The Party of the Second Part shall set aside Sixty Per Cent (60%) of the said
sum of P8,643,472.24 as received by them to be held in trust for the benefit of
their laborers that may be entitled thereto because some of them have already
died and their heirs are unknown while a great number of them are hard to
locate and Identify, the Party of the Second Part, shall dispose of the said Sixty
Per Cent (60%) of the sum of P8,643,472.24 as received by them, as follows:

COMPANY will pay in cash to the Party of the Second Party or its successors the
said value of the said 40,000 shares or of such blocks of 10,000 shares per block,
as the Party of the Second Part may decide to have converted into cash, as to
such blocks of 10,000 shares per block, that the Party of the Second Part may
decide within the period above stipulated to retain, such shares may be retained
by the PLANTERS for their own account upon their payment to the Party of the
Second Part or its successors of the value thereof of P1,000,000.00 per block.
The COMPANY shall have a period of Thirty (30) days after receipt of written
request of the Party of the Second Part within which to make such cash
payment of the value of the shares.
The balance of P1,186,083.34 shall be distributed under the supervision of the
Secretary of Labor among the present laborers of the Party of the Second Part
who were already laborers of the PLANTERS during the period comprised
between June 22, 1952 (the date of the passage of Republic Act 809) and
October 31, 1955 (the end of the COMPANY's fiscal year);
(ii) As to the sum of P3,457,388.90, which is the Forty Per Cent (40%) of the
P8,643,472.24, the Party of the Second Part shall distribute this amount among
the PLANTERS in proportion to the sugar milled for them by the COMPANY
during the aforementioned period of June 22, 1952, to October 31, 1955.'

(b)
As to the manner of delivery of the cash involved in the foregoing
transaction amounting to P4,643,472.24, a 'General Collective Sugar Milling
(1) The Party of the Second Part shall invest P4,000,000.00 of the P5,186,083.34, Contract' has heretofore been prepared for the signature of the PLANTERS
which is Sixty Per Cent (60%) of the said sum of P8,643,472.24, in 40,000 voting affiliated with the COMPANY signing the said 'General Collective, Sugar Milling
and transferable shares of capital stock of the COMPANY of the par value of
Contract, the Company shall pay and deliver to the Party of the Second Part at
P100.00 per share which shall be issued in four (4) blocks of 10,000 shares per
least fifty per cent (50%) of the said cash balance of P4,643,472.24 or that
block by the COMPANY to the Party of the Second Part upon effectivity, of this
portion thereof corresponding to the said majority of the PLANTERS affiliated
agreement as provided in Clause (2) hereof, it being understood that the
with the COMPANY who have already signed the said 'General Collective Sugar
issuance of such shares does not involve an increase in the present authorized
Milling Contract', and the remaining fifty per cent (50%) or remainder thereof
capitalization of the COMPANY.
will be paid, one half upon the execution of their new individual sugar milling
contracts, and the other half upon the registration thereof in the Office of the
The above-mentioned 40,000 shares of the capital stock of the COMPANY will
Register of Deeds for the Province of Negros Occidental;
enable the laborers/planters to become part owners of the COMPANY but if
within the period of eighteen (18) months, but not earlier than six (6) months,
(c)
It is understood, as part of this settlement agreement, that the block of
from and after date of delivery of the said 40,000 shares by the COMPANY to
the COMPANY's common shares mentioned in subparagraph (i) and all its
the Party of the Second Part, the Party of the Second Part should desire to have earnings shall constitute a trust fund to be dedicated to the amelioration of the
the value of the said 40,000 shares to wit, P4,000,000.00 or such portions
plantation laborers of the PLANTERS in the Victorias-Manapla-Cadiz milling
thereof in blocks of 10,000 shares at Pl,000.00 per block, paid in cash, the
district. Said trust fund shall be administered by the Party of the Second Part for

the benefit of the PLANTERS' laborers under the supervision of the Secretary of
Labor and in accordance with the trust laws of the Philippines. Should the trust
fund be liquidated by order of the Court of Justice or in the manner provided for
in paragraph (1) (a) (i) then the PLANTERS shall have the first option from the
trustees, and the COMPANY the second option from the trustees and/or from
the planters themselves, to buy said Victorias Milling Co., Inc., shares in blocks of
10,000 shares at their value of P1,000,000.00 per block. And in case both the
Party of the First Part and Party of the Second Part refuse to exercise their right,
then said block of VMC shares may be sold in the open market.'
(2)
This agreement will become effective if and when the majority of the
planters affiliated with the Party of the First Part have signed the said 'General
Collective Sugar Milling Contract'.

These, in addition to the testimony to the same effect of Mr. de Guia of the
Department (now Ministry) of Labor lengthily quoted above as parts of the
portions of the briefs of the PLANTERS and VICTORIAS. We say, to the same
effect, because it is Our definite impression that read as a whole, and evaluated
together with Exhibit 23-VICMICO, that testimony, albeit rather vague, confusing
and at some places evasive, proved sufficiently that what were due the laborers
in cash and in shares of stock (or the proceeds of the sale thereof) had been
fully settled under the supervision of Mr. de Guia and his men not later than
1956 or 1957 in five phases of distribution. True it is that Exhibit 23-VICMICO
was declared inadmissible as secondary evidence by the Court of Appeals, but
what is even more legally accurate is that such ruling is erroneous, if only
because said exhibit was precisely used by Mr. de Guia as basis for his
testimony, and he explained that the pertinent records supporting the same
were so voluminous that it would be impractical to take them to the court.

Executed at Victorias, Negros Ocidental this 5th day of March, 1957. (VICTORIAS'
Brief, pp. 26-30, Appendix A, G.R. No. L-41222.)
Incidentally, We are persuaded it cannot be said that the FEDERATION or the
laborers did not agree to the modality of payment provided for in the ASCA. If at
Thus, it is unmistakably clear that as far as VICTORIAS was concerned, it agreed all they muttered against it, it was only belatedly during the trial, that is, after
to give to the PLANTERS the 10% it has precisely reserved for that purpose in
they had already received the cash portion therein provided.
order to comply with the mandate of the law in the event its challenge against
its constitutionality should fail. And as it happened, it opted soon enough not to Indeed, We cannot share the view implicit in the decision of the Court of
continue pressing that challenge by extrajudicially entering into a settlement
Appeals that the principal witness regarding the same, Mr. Felipe de Guia, the
with the PLANTERS. And as regards the actual implementation of the portion of representative of the Secretary of Labor, under whose supervision, Section 9 of
the agreement regarding the share of the laborers, apart from the admission of the Act requires the payments to the laborers to be made, was not duly aware
the FEDERATION, oft repeated earlier; relative to the actual receipt by its
of the medium provided in said ASCA that P4 M of the share due the laborers
members of their legal share of 1952 to 1955 crop years, We might relevantly
would not be paid in cash but would be invested in the form of 40,000 shares of
point out that Chairman Jison testified without contradiction thus:
VICTORIAS. As may be noted from the Appellate Court's decision, the transcript
of the stenographic notes of Mr. de Guia's testimony evidences that he had in
Q.
Would you like to tell this Honorable Court what happened to the
his possession the record of the distribution of the P4 M, although the said court
money, whether in cash, check or in terms of shares of stock which was
held such assertion not to be the best evidence. Whether such ruling is correct
delivered by the Victorias Milling Co., Inc. to the Board of Trustees?
or not, it refers only to the actual distribution of the cash and the shares of stock
or the proceeds of the sale thereof, but the fact that P4 M were to be paid in
A.
The stock of shares of the Victorias Milling Co.,Inc. which was delivered shares appears indubitably proven. We are thus of the considered opinion that
to the Board of Trustees was sold and liquidated according to the Amicable
the findings of fact of the Court of Appeals inconsistent with Our observations
Settlement-Compromise Agreement and in such case, checks were issued to the herein do not accord with conventional knowledge of men and the general
respondents planters and also to be delivered to the respective laborers under
experience of the business world, hence Our authority to modify the same. 5 It
the supervision of the Department of Labor. So far the record is concerned, the is to Us but natural to assume that said witness, Mr. de Guia, knew or ought to
Department of Labor has all the records. (pp. 37-38, tsn., June 17, 1970).
have known of such medium of settling the laborers' claim because it is to be
(VICTORIAS' Brief, Appendix A, p. 71, G.R. No. L-41222.)
presumed that in the regularity of the performances of his duties to supervise
the payment to the laborers, on behalf of the Secretary of Labor, he had read

and did know the pertinent contents of the ASCA before supervising any
payment at all to the laborers. He admitted that of P1,186,083.34 due in cash to
the laborers, the latter were actually paid under his supervision, the said
amount minus P180,679.38. We cannot suppose that he undertook that task
without inquiring into the whys and wherefores thereof, that is to say, the
reasons and details related to the amount being then paid. How could it have
been possible for him to have supervised the payment of any amount to the
laborers without determining first whether such payment was in full or not or in
faithful compliance with Section 9 of the Republic Act 809? We have no doubt
he must have been told about or even shown the ASCA, which was the basis for
the payment. If it were otherwise, it was his inescapable duty to inquire. We
presume, by mandate of the law, that he had complied with that duty. More, it
is highly improbable that the FEDERATION did not know that what was due its
members was P5,186,083.34. In truth, there is nothing before Us showing that
the FEDERATION objected at all to the manner of payment provided in the ASCA
when the time for implementation came. As far as the records before Us
indicate, the laborers received under Mr. de Guia's supervision P1,186,083.34
(minus P180,679.38) without a word of complaint from anyone, either the
FEDERATION or the SECRETARY. We are, therefore, not disposed to find that the
mode of payment agreed upon in the ASCA was without the conformity or
consent, even if subsequent to its execution, of the laborers and the Secretary
of Labor. We hold that there was such consent.

So, while it is true that the ASCA was questioned as being violative of Section 1
of the Sugar Act of 1952, the challenge was in relation alone to the contention
of the FEDERATION, the SECRETARY OF LABOR and some planters that the ratio
of sharing provided for in Section 1 of the Act is unalterable by contract. Insofar
as the manner in which the payment of what is due to the laborers was
concerned, that is, that stipulated in the ASCA, We are impressed convincingly
that the same must have appeared satisfactory to all the parties concerned.
Indeed, if the FEDERATION had felt that the mode or medium of payment
stipulated in the ASCA was prejudicial or in any way inimical to the interests of
its members, why was the cash payment of P1.8 M plus accepted without, as far
as We can see from the records, any qualification or reservation on its part or on
that of the Secretary of labor. 6 On the contrary, what We note is that the
transfer to the PLANTERS of 40,000 shares of VICTORIAS in trust for the laborers
could have been viewed by the laborers with alacrity, not only because of the
attractively high increment it was supposed to earn for them, but, what is more,
the laborers would become thereby co-owners of the mill.

It is to Us of little, nay insignificant, moment who conceived or "engineered" the

plan, whether VICTORIAS or any other party and what motivated the same.
What cannot be denied is that under normal standards, no one can perceive
therein any prejudice or risk to the pecuniary interests of the laborers. To speak
of it, therefore, as approximating something immoral or improper, even illegal,
for VICTORIAS to agree to it, as the Appellate Court did, is to miscomprehend
In this connection, it should be recalled that after Civil Case No. 16815 of the
entirely its concept, which under the circumstances then prevailing appeared to
Court of First Instance of Manila, wherein it was held that all the contracts being be the most practical and feasible way of meeting the situation for the
insisted upon by VICTORIAS as still existent had already expired on June 22,
convenience and benefit of the laborers themselves, the PLANTERS and
1952, which decision was affirmed by this Supreme Court in G. R. No. L-6648 on VICTORIAS.
July 25, 1955, in another suit, Civil Case No. 22577, also in the Court of First
Instance of Manila, wherein the constitutionality of Republic Act 809 was
-Iimpugned by VICTORIAS, the validity of ASCA itself was put to question when
VICTORIAS and the PLANTERS submitted to the court their manifestation on
Having arrived at the conclusion that of the cash portion stipulated in the ASCA
April 23, 1956 that they had come to an extrajudicial settlement effective upon plus the proceeds of the sale of the 40,000 shares of VICTORIAS stock had
the signing of the General Collective Sugar Contract (Exhibits YYY and YYY-7)
already been "given", to use the word of the FEDERATION itself in its pleadings
which was ultimately signed by majority of the PLANTERS on or before May 31, below, long before the case in the trial court was initiated, only P180,679.38 of
1956. The challenge was made not only by some individual planters, like the
the claim of the laborers pertaining to the 195253 to 1954-55 crop years remain
Coruas, Lacson, Chapa, Valencia, et al., but more importantly also by the
unpaid, We shall now dwell on the curious and strange holding of the Court of
Secretary of labor. However, the intervention of these challengers was not
Appeals that VICMICO and the PLANTERS are jointly and solidarily liable to the
allowed by the court, and on November 5, 1956, We issued a resolution in G. R. laborers for the payment of their claims, but only insofar as said P 180,679.38
No. L-11218 dismissing a petition against such denial.
are concerned.

Referring to the FEDERATION'S position in this respect, that is, the joint and
solidary liability of the PLANTERS and VICTORIAS vis-a-vis the 1952 to 1955
phase of these cases, We must say that the same looks more like a dragnet
intended to catch both the PLANTERS and VICTORIAS one way or another. After
having admitted in its initial pleadings with an express assertion that the
laborers concerned had already been "given" what is due them for the period in
question, at the trial, its claim bulged to over P7 M for the 1952-1955 period,
albeit it came out from the evidence that of such claim only P180,679.38 had
not been paid. (According to Mr. de Guia, the corresponding laborers could not
be located. Under the law, however, in such an instance, the money due the lost
laborers goes to be a designated government fund for the general amelioration
of labor and labor conditions in the whole country.) Actually, We might
reiterate, said initial pleadings of the Federation made no reference at all to the
crop years 1952-53 to 1954-55, but was confined itself to the claim that from
1955-56 crop year to 1973-74, the laborers were not being paid what is due
them under the law, which they insisted then was 6% of the 10% increase due
the PLANTERS. In other words, the FEDERATION based its original claim on the
theory of obligation created by law, but, of course, in reference only to the 1956
to 1974 crop years nothing of 1952-53 to 1954-55.
However, as may be gleaned from the decision of the Court of Appeals, in that
Court, the FEDERATION shifted to another pose. It claimed, contrary to its
admission in its original and amended petition in the trial court, that the
laborers had not been actually fully paid what is due them for 1952 to 1955, and
notwithstanding their receipt or acceptance, without any protest or qualification
of the cash portion (which turned out to be short by P180,679.38) provided in
the ASCA, it assailed, rather belatedly, the legality and propriety of that
agreement's provision to the effect that P4 M due them would be paid in 40,000
shares of stock to be entrusted to a Special Committee or Board of Trustees
composed of five planters, and what is more, it contended vehemently that the
laborers had not received any of said shares or any portion of the proceeds of
the sale thereof. As to the legal aspect of such belated claim, its basis became
no longer an obligation created by law but a liability imposed according to it by
Articles 20 and 21 of the Civil Code. But it must have also relied on torts, for in
its decision, the Court of Appeals found "the Central (VICTORIAS) and PLANTERS
jointly and severally liable for tort", while citing in another portion of its decision
also Articles 20 and 21 of the Civil Code. We must confess We are perplexed by
such evident confusion of the pertinent juridical concepts in civil law in such
postures of the Court of Appeals and the FEDERATION. The only legal provision

that could impute joint and several or solidarity to the PLANTERS and VICTORIAS
is Article 2194 of the Civil Code which reads:
ART. 2194. The responsibility of two or more persons who are liable for a quasidelict is solidary.
Since in this jurisdiction torts is generally equated with the quasi-delict or culpa
aquiliana or extra-contractual defined and elucidated in Chapter 2, Title XVII,
comprising of Articles 2176 to 2194 of the Civil Code, it must have been for this
reason, that without mentioning the codal provisions just referred to, and trying
to play safe, as it were, with its reference to torts in general, the Court of
Appeals made its holding under discussion. Surprisingly, however, it later on
cited Articles 20 and 21 of the Civil Code, thereby implying that its reference to
torts might be in relations to these two later articles under Chapter 2 on Human
Relations of Chapter I of the Code. We do not hesitate to hold as We hereby
hold that such a confusion of simple and well-known civil law concepts is
unfortunate, to say the least. There is an obvious mix-up of the several sources
of obligation under existing laws, and one is left uncertain whether what is being
relied on is only one of them or a combination of them or all of them together,
which would naturally be a veritable juridical and legal abnormality. For the
benefit of everyone concerned, We shall make a brief analysis of each of them
that have been directly or indirectly referred to by the Court of Appeals or the
FEDERATION.
In regard to the FEDERATION'S initial contention about obligation created by
law, undoubtedly, it had in mind Sections 1 and 9 of Republic Act 809. But since
in such initial pleading, the subject matter and cause of action referred to crop
years 1955-56 to 1973- 74, the FEDERATION is correct in sustaining that the
laborers are entitled to a 60% share in the increase given to the PLANTERS by
the CENTRAL. Its only misconception in such posture is that it assumed that the
ratios in Section I of the Act have to be followed even if there were a majority of
planters with written contracts with VICTORIAS. Under Talisay-Silay and the
decision of the Court of Appeals, that position is untenable. However, the
laborers are nevertheless entitled to 2.4% out of the 4% increase that pertained
to the PLANTERS under the ASCA. Accordingly, the PLANTERS are liable to their
respective laborers for the 2.4% that indisputably they have not paid since 1955
to 1974. Obviously, that is an obligation created by law.
But arising as it does from Republic Act 809, the relevant question that arises is
whether such liability of the PLANTERS is joint and several or solidary. After

mature deliberation, considering the peculiar facts of these cases wherein it

appears that the PLANTERS always acted in concert with one another or as a
single unit, We hold that the PLANTERS as an association, if it is, or all the
planters in the Victorias sugar milling district, whether members or not of such
possible association, and this includes petitioners Santos, as a lessee planter,
and Tirol, are jointly and severally liable for the whole amount due all the
laborers involved in these cases. As regards the pretended liability of VICTORIAS
in this respect, We have already disposed of that matter earlier above.
Coming now to the matter of torts, the FEDERATION cites from Judge C. P.
Caguioa's Comments and Cases on Civil Law, Vol. I, 1967 ed. to evidently give
the impression that Article 20 of the Civil Code has adopted or imported into
Our jurisdiction the so-called Anglo-American concept of torts which adds
malice to the fault or negligence contemplated in the quasi-delict or culpa
aquiliana or extra-contractual of our Civil Code. Such citation, We regret to say,
does not reenforce at all the stand of the laborers. 'Truth to tell, with all due
respect to the opinion of Judge Caguioa, a known civilian, Article 20 does not
contemplate malice per se. The article reads thus:
ART. 20. Every person who, contrary to law, wilfully or negligently causes
damage to another, shall indemnify the latter for the same.

It is thus clear from the foregoing brief discussion of the juridical concepts of
torts, culpa aquiliana and Article 20 of the Civil Code that neither the PLANTERS,
and much less VICTORIAS, appears to be guilty of tort in any sense. Accordingly,
the holding of the Court of Appeals that "the Central and PLANTERS are liable in
tort" to the laborers of the former has no factual nor legal basis. In
consequence, it necessarily follows that the joint and several liability imposed by
the Court of Appeals upon VICTORIAS must be, as it is hereby, held to be
erroneous and uncalled for, factually, as shown earlier in Our discussion of the
relationship between the laborers of the PLANTERS and VICTORIAS, and legally,
in the light of what we have just explained is the only correct legal basis of the
laborers' claim, namely, an obligation arising from law. To reiterate, the law,
that is, Republic Act 809, does not impose upon the centrals, whether expressly
or impliedly, any joint and several liability with the planters for the share which
the Act apportions for the laborers of the planters, since it is the responsibility
exclusively of the planters to pay their laborers after they have been given by
the central what is due them. In other words, the inherent nature of the
obligation of the planters, that of paying their own laborers, has never been
from the inception of the sugar industry up to the present, solidary with the
Centrals. Article 1207 of the Civil Code provides in this respect thus:

ART. 1207. The concurrence of two or more creditors or two or more debtors in
one and the same obligation does not imply that each one of the former has a
This article creates a new source of obligation in addition to culpa aquiliana.
right to demand, or that each one of the latter is bound to render, entire
While Article 2176 mentions only fault or negligence, as can be seen, the above- compliance with the prestation. There is a solidary liability only when the
quoted article requires that the person to be held liable must have acted
obligation expressly so states, or when the law or the nature of the obligation
"contrary to law" unwilfully or negligently caus(ing) damage to another." If We
requires solidarity.
are to believe the following citation in VICTORIAS brief:
In these premises, We cannot see how VICTORIAS may be held jointly and
In order that liability under Article 2176 of the Civil Code will arise the following severally liable with the PLANTERS, contrary to what has been held by the Court
requisites must exist: (a) There must be damage or prejudice which must be
of Appeals.
proven by the party claiming it; (b) There must be an unlawful act or omission
amounting to fault or negligence; and (c) There must be a direct causal
XIII
connection between the damage or prejudice and the act or omission. (12
Manresa, 640-641; Taylor v. Manila Electric Co., 16 Phil. 8; Jarencio, Torts and
The foregoing sufficiently resolve, the first eight (I to VIII) of the ten (10)
Damages, 1968 Edition, p. 25). (Page 222).
assignment of errors of the FEDERATION. We shall now tackle the remaining two
of them.
even under culpa aquiliana "there must be an unlawful act or omission" for any
liability to attach.
-A-

In its Assignment of Error IX, the FEDERATION ascribes to the Court of Appeals
the alleged error of not holding VICTORIAS and the PLANTERS jointly and
severally liable for exemplary damages for the losses that the laborers have
suffered because they were not paid their share of the 1952-53 to 1954-55 crop
years production. Needless to say, as a consequence of Our holding that by their
own admission and the evidence misapprehended, in Our view, by the Court of
Appeals, all the amounts due them for said period have already been paid,
except P180,679.38, We can perceive no legal reason why such claim for
exemplary damages should be awarded. With particular reference to the
P180,679.38 left unpaid in 1955, FEDERATION'S own witness de Guia explained
that the laborers to which the same correspond could not be located. In the
light of such explanation, it would be unfair to even think of exemplary damages
for the non-payment thereof.

circumstances considered, We fail to see Our way clear to granting any kind of
moral, temperate or compensatory damages to the laborers, and We are not
doing so. In fact and in law, We have no basis to go that far. Thus, it is pointless
to speak of exemplary damages here.
-CLastly, the FEDERATION complains that the Court of Appeals erred in reducing to
10% the 20% attorney's contingent fees stipulated in the laborers' contract with
their counsel. (Page 307, Laborers' Brief) Every material point discussed in the
brief taken into account, We share the conclusion of the Appellate Court that
the said ten (10%) per centum award of attorney's fees is just and adequate.
XIV

-BAs to the matter of the non-payment by the PLANTERS of the 2.4% due their
laborers, a little clarification may be called for. We feel that the legal provision
mandating such payment may indeed not be readily understood by or
comprehensible to everyone in the same sense it was construed by this Court in
Talisay-Silay and by the Court of Appeals in its subject decision. For, it is
undeniable that Section 9 of Republic Act 809 uses the words "any increase in
participation granted the planters under this Act". (emphasis supplied) Read
literally, there could be a little shade of plausibility in the posture of VICTORIAS
and PLANTERS that only any increase as a result of the application of Section 1
of the Act is contemplated in its Section 9, and not an increase by virtue of a
written milling contract executed after the effectivity of the Act, even if those
who do so might constitute the majority of the planters in the district. But, as
We postulated in Talisay-Silay, any increase given to the planters by any central
after the passage of the Act cannot be viewed in any way than that which has
been induced or forced to be done on account of the compulsive effect of the
various related provisions of the Act. Virtually, therefore, any such increase
should be deemed as an "increase under this Act", since it is a result of its
operation. Understandably, since it is only because of this Court's construction
of the Act rather liberally, to be sure, in favor of labor, We cannot say that, in
the words of Article 2233 of the Civil Code, the laborers here are entitled to
recover exemplary damages "as a matter of right. " We must consider that per
Article 2234, "the plaintiff must show that he is entitled to moral, temperate or
compensatory damages before the court may consider the question of whether
or not exemplary damages should be awarded." In the instant cases, all relevant

Insofar as VICTORIAS' petition is concerned, there are only three assignments of

error (VII, VIII and XII) that may not be said to be squarely resolved in the above
opinion.
-AVICTORIAS vehemently maintains in its Assignment of Errors No. VII that
nowhere in the course of the proceedings below, starting from the allegations of
both the original and amended petition of the FEDERATION through the
evidence it presented without opportune and appropriate objection, may there
be traced any theory having the semblance of reliance on the law on torts,
whether in the concept of culpa aquiliana or under Articles 20 and 21 of the Civil
Code, the alleged Anglo-Saxon version, per Judge Caguioa, supra, or, any other
variant thereof. According to VICTORIAS, the alternative bases perceptible in the
FEDERATION'S petitions which ultimately led to the instant cases before Us now
were either an obligation arising from law (Republic Act, 809) or one that is
contractual, the latter being somewhat vague to Us, since it is in fact premised
on the alleged invalidity of the provisions of the ASCA. And here, it is the
position of VICTORIAS that assuming the cause of action of the FEDERATION
could still be legally convertible in the appellate stage of the proceedings, either
in the Court of Appeals or here, to one of "torts", We should dismiss the
FEDERATION'S petition, the same having been filed in November 1962 or more
than four (4) years after the alleged cause of action arose in 1955 or 1956, citing
Article 1146 (2) of the Civil Code.

With the view We have taken of the whole controversy as discussed in the
above opinion, We deem it unnecessary to pass on such seventh assignment of
error of VICTORIAS regarding prescription of an action on torts, whether We
look at it in relation to the 1952-53 to 1954-55 crop years controversy or in
connection with the 2.4% claim of the laborers for crop years 1956 to 1974.
-BIt is VICTORIAS' posture in its assignment of error No. XII that the real nature of
the action of the laborers in these cases is one for accounting, hence, as a
preliminary matter, We should first determine whether or not they are entitled
to such accounting. Stated otherwise, it looks to Us that VICTORIAS claim is that
it is premature yet at this stage of the controversy to deal with any sums of
money or amounts due the laborers, there being no showing extant in the
record that such entitlement exists. Again, We hold We do not have to spend
more ink and paper to deal with such contention. Either it is quite clear that the
FEDERATION has sufficiently established the predicate for accounting insofar as
the PLANTERS are concerned or We consider it superfluous to make any ruling
as to the point in question for the purposes of these cases, since the ultimate
result of Our above opinion would virtually not be different anyway.

However, it cannot be denied that under Republic Act 809, for the first time,
outside of enacting the Minimum Wage Law and expressly extending fringe
benefits, like cost-of-living allowances, bonuses, etc. to the workers in the sugar
industry not only in the farms but also in the mills, the government has never
fixed the manner in which the planters should share the proceeds of milled
sugarcane with their respective plantation laborers. And notably, in Section 9 of
the Act, the Congress made it abundantly specific that what the provision
contemplates in the partition between the planters, on the one hand, and their
respective plantation laborers, on the other, is of "any increase in the
participation granted the planters under this Act and above their present share,"
which the provision explicitly mandates "shall be divided between the planter
and his laborer in the plantation (and that) (T)he (said) distribution of the share
corresponding to the laborers shall be made under the supervision of the
Department of Labor."

Such being the case, VICTORIAS suggests the proposition that, therefore, if
somehow the Act creates any link at all between the plantation laborers and the
central, Section 9 itself makes the planter the agent of his laborers in such
relationship and speaks for them and is responsible to them, as their principal.
When, therefore, the PLANTERS entered into and signed the ASCA, they did so
not only for themselves but for and on behalf of their principal, the laborers, in
-Crespect to all matters concerning the latter. Consequently, VICTORIAS argues
that the plantation laborers are bound by the terms and conditions of the ASCA
There is one point raised by VICTORIAS which although generally covered
as parties thereto, represented by their agent, the PLANTERS. There may be
somehow in the above opinion, deserves special mention and discussion. The
something in such pose, but rather than go into the intricacies and
central maintains that in the interrelation among the planters, the plantation
complications that evidently would need to be elucidated and resolved in
laborers and the miller, it has always been the practice and actually a legal
relation thereto, but which anyway would be inconsequential as far as the basic
axiom that the central, on the one hand, and the planter, on the other, whether views of these cases expressed in Our above opinion are concerned, We prefer
the latter be a landowner or lessee or one who just factually plants and delivers to deal with VICTORIAS' argument under discussion on some other appropriate
his harvest for milling to the central of the corresponding district under any
occasion when its resolution should become indispensable, After all, in the cases
other arrangement with the landowner concerned, are the only ones who enter at bar, it is already altogether clear, as We have discussed in Our above opinion,
into contractual relations with each other, and in all the contracts between
that whatever the plantation laborers are claiming is due them must be the
them, since the sugar industry began, nothing whatsoever has been provided
exclusive responsibility and liability of the PLANTERS jointly and severally among
with respect to the laborers, either of the miller or the planters, except, in any
themselves, to the complete exclusion of VICTORIAS.
event, precisely to make it clear that neither of them would have anything to do
with the terms and conditions of each other's workers or laborers. We have
XV
stated earlier and We reiterate Our view that there is nothing in Republic Act
No. 809 that alters such a long standing factual and juridical situation.
All of the assignments of errors of the PLANTERS (I to VI) in their brief with Us
have been resolved in Our opinion above. There is, however, something they
mentioned in their prayer that We might just as well clear up and dispose of.

The PLANTERS pray that they should not be made liable to their respective
laborers for any of the claims herein involved because they have not
"engineered nor pocketed that which allegedly belong to the laborers as a result
of the ASCA, for they (the PLANTERS) got only what they are entitled to under
Republic Act 809", and elsewhere, they suggest that should they be found
somehow liable, VICTORIAS should be adjudged to reimburse them therefor.
We shall not concern Ourselves about the "engineering" that brought forth the
ASCA. The Court of Appeals discussed that matter in detail in its decision now
under review, and its factual conclusions relative thereto, whether right or
wrong, cannot, to Our mind be of pivotal influence in the ultimate resolution of
these cases. In a sense, what circumstances go into the process of formulating
contracts between the sugar centrals and the planters are matters of public
knowledge among all those duly informed about and concerned with the sugar
industry, and We must assume that whatever comes out of their bargaining
cannot be but their voluntary and mutual agreements, even if, in this
connection, it is but fair to admit that by force of the inherent nature of the
indispensability of the centrals as the last factor of production of the saleable
milled sugar, its superior position is an economic reality everyone must accept.
The Court of Appeals realistically considered the matter as something that is not
illegal (and not exactly immoral), much less in contravention or circumvention of
the Sugar Act, but dictated by the legitimate exercise of all individuals to make a
profitable bargain. Emphatically, it must be said though, that the PLANTERS
were not entirely helpless, for as We see the scenario that may be flashed out of
Republic Act 809, all that the PLANTERS had to do was to refuse to sign any
contract with VICTORIAS, in which event, the government, thru a receiver,
would have run the mill and the PLANTERS could have gotten the 10% increase
provided in Section I. If they signed, as they did, a contract, the ASCA, providing
for a 36-64% partition, We can only deduce ineluctably that such was the better
option for them under the circumstances. And since, everyone is presumed to
know the law, for ignorance thereof "excuses no one from compliance therewith
", and the courts, after all, are not guardians of parties, sui juris, who might get
the shorter end at bargaining tables, We have no alternative but to conclude
that when they signed the ASCA, the PLANTERS were well aware that of the 4%
increase granted therein to them, 60% had to be paid by them to their
respective laborers. Thus, when they plead that what they got under the ASCA
was only what they are entitled to under the Act, they must not be understood
as referring to the whole 4% but only to 1.6%.

Let it be plainly understood, in this connection, that under Our Talisay-Silay

ruling, the laborers are entitled to no more than 60% of any increase in any
increase in participation their respective planters-employers might be granted.
Beyond that whatever goes to the PLANTERS and to VICTORIAS, for that matter,
are theirs as a matter of law and right. To speak of "pocketing" by anyone of
somebody else's rightful and lawful share is somehow malicious and entirely
unwarranted.
From the facts extant in the record, and applying the law thereto, it is the
conclusion of this Court that the PLANTERS are inescapably liable to their
respective laborers in the amounts and manner hereinabove set forth. They
should know better than to place the blame on anyone else. Their respective
laborers have been deprived long enough of what is legally and rightfully theirs.
It is unimaginable how said laborers could have had better lives and living
conditions, worthy of their work, had the PLANTERS been more socially-minded
and humanely concerned about the welfare of those that have made them the
"sugar lords" during better times in Negros Occidental. To make things clearer,
the claim for reimbursement by the PLANTERS is hereby overruled.
XVI
The petition of planters Primo Santos and Roberto Tirol requires no separate
discussion. Their claims that the trial court had no jurisdiction over their persons
and that they should not be held liable for obligations under a contract they
have not signed deserve scant consideration. In fact, those points are already
properly dealt with in the above opinion, hence all their assignment of errors are
hereby held to be untenable.
JUDGMENT
Accordingly, the Court AFFIRMS the judgment of the Court of Appeals holding
that the LABORERS are entitled to the payment of 60% of the 4% increase paid
by VICTORIAS to the PLANTERS every crop year, from crop year 1955-56 to crop
year 1973-74, the exact amount thereof in pesos to be determined by the trial
court after a hearing to be held within thirty (30) days from the finality of this
decision, the yearly amount thus determined to bear the corresponding legal
interests up to the date of payment to the LABORERS, 7 the PLANTERS, including
appellants Primo Santos and Roberto Tirol, are sentenced to pay the said
LABORERS the amount to be so determined, under the supervision of the
Ministry of Labor. In addition, the said PLANTERS shall also pay to the

LABORERS, the sum of P 180,679.38, the balance unpaid of the latter's share in
the 1952- 53 to 1954-55 crop years 8 also with the same rates of interest and
under the same supervision.

Silay case. We upheld as justified and warranted not only be police power but by
the more pervasive mandate of the social justice provisions of the Constitution.

2
In respect to the 1952-53 to 1954-55 crop years, the Court of Appeals
The judgment of the Court of Appeals is hereby modified by eliminating the joint directly imputed connivance to the PLANTERS and VICTORIAS seemingly
and several or solidary liability of VICTORIAS with the PLANTERS for the above
because, in its opinion. the payment of P4 M in shares of stock instead of in cash
amounts, the said liability being solely and exclusively of the PLANTERS.
was prejudicial for at least resulted in prejudice or loss) to the laborers. But as
Moreover, contrary to the finding of the Court of Appeals, the Court finds and
regards the 1955-56 to 1973-74 crop years, the ASCA contained no provision
holds that per their own admission in their complaint and the extant evidence,
other than what Talisay-Silay and the Court of Appeals held to be legal namely,
the laborers had already been paid their share in the 1952-53 to 1954-55 crop
for VICTORIAS to share the proceeds of production during said period with the
years, except for the P 180,679.38 aforementioned. In all other respects, the
PLANTERS on a 36-64% basis.
judgment of the Court of Appeals is AFFIRMED insofar as the liability of the
PLANTERS to their laborers are concerned. And We hold that said liability is joint 3
Section 9, Art. 11, Id.
and several among all the planters in the Victorias District from 1952 to 1973,
provided that in the execution of this judgment, the primary and priority
4
Section 5, Rule 10
recourse should be against the members of the Special Committee or Board of
Trustees and secondly, the PLANTERS, as an association, before they (the
5
Luna vs. Linatoc, 74 Phil. 15.
planters) are proceeded against individually.
6
Somewhere in the brief of the laborers, there is an indication that
This estimate is subject to the amount to be determined by the trial court.
earlier, the Secretary of Labor voiced his objection to the part payment in shares
of stock, but such objection paled into insignificance when no protest was made
Costs against the PLANTERS also in the same character of liability just set forth
by him, when pursuant to the ASCA, the actual payment of the cash portion and
as to their principal liability.
the issuance of 40,000 shares were actually made. In fact, there is convincing
evidence in the record that the payment was made under the direct supervision
Concepcion, Jr., Fernandez, Guerrero, Abad Santos, De Castro and Melencioof his authorized representative, not only of the stipulated cash portion but
Herrera, JJ., concur.
even of the proceeds of the sales of the 40,000 shares of stock.
Fernando, C.J., concurs in the result.

7
The rates of interest should correspondingly be increased in accordance
with the prevailing legal rate of each crop year.

Teehankee, Aquino, J., took no part.

Makasiar, J., the Court of Appeals should be entirely affirmed.
Footnotes
1
An initial attempt to pass a law referring only to the relationship
between the centrals and the planters was thwarted be a veto by President
Quirino on the ground of unconstitutionality. Subsequently, as it was finally
passed and allowed to be a law without the President's signature, the Act
contained provisions of social character in favor of labor, which in the Talisay-

8
Computed on the basis of the shares of the LABORERS' share of 6% in
the 1952-53 to 1954-55 crop years, it may be estimated that with the 2.4%
corresponding to them for the crop years 1955-56 to 1973-74, under this
judgment, the LABORERS should receive a total amount in the neighborhood of
Thirty Million (P30 M) Pesos.

CHICO-NAZARIO, J.:
THIRD DIVISION

IMMACULADA L. GARCIA,
Petitioner,

versus -

SOCIAL SECURITY COMMISSION LEGAL AND COLLECTION, SOCIAL SECURITY

SYSTEM,
Respondents.
G.R. No. 170735
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
Promulgated:
December 17, 2007
x-------------------------------------------------x

DECISION

This is petition for review on Certiorari under Rule 45 of the Rules of Court is
assailing the 2 June 2005 Decision[1] and 8 December 2005 Resolution[2] both
of the Court of Appeals in CA-G.R. SP No. 85923. the appellate court affirmed
the --- Order and --- Resolution both of the Social Security Commission (SSC) in
SSC Case No. 10048, finding Immaculada L. Garcia (Garcia), the sole surviving
director of Impact Corporation, petitioner herein, liable for unremitted, albeit
collected, SSS contributions.
Petitioner Immaculada L. Garcia, Eduardo de Leon, Ricardo de Leon, Pacita
Fernandez, and Consuelo Villanueva were directors[3] of Impact Corporation.
The corporation was engaged in the business of manufacturing aluminum tube
containers and operated two factories. One was a slug foundry-factory located
in Cuyapo, Nueva Ecija, while the other was an Extrusion Plant in Cainta, Metro
Manila, which processed the slugs into aluminum collapsible tubes and similar
containers for toothpaste and other related products.
Records show that around 1978, Impact Corporation started encountering
financial problems. By 1980, labor unrest besieged the corporation.
In March 1983, Impact Corporation filed with the Securities and Exchange
Commission (SEC) a Petition for Suspension of Payments,[4] docketed as SEC
Case No. 02423, in which it stated that:
[Impact Corporation] has been and still is engaged in the business of
manufacturing aluminum tube containers x x x.
xxxx
In brief, it is an on-going, viable, and profitable enterprise.

On 8 May 1985, the union of Impact Corporation filed a Notice of Strike with the
Ministry of Labor which was followed by a declaration of strike on 28 July 1985.
Subsequently, the Ministry of Labor certified the labor dispute for compulsory
arbitration to the National Labor Relations Commission (NLRC) in an Order[5]
dated 25 August 1985. The Ministry of Labor, in the same Order, noted the
inability of Impact Corporation to pay wages, 13th month pay, and SSS
remittances due to cash liquidity problems. A portion of the order reads:

On the claims of unpaid wages, unpaid 13th month pay and non-remittance of
loan amortization and SSS premiums, we are for directing the company to pay
the same to the workers and to remit loan amortizations and SSS premiums
previously deducted from their wages to the Social Security System. Such claims
were never contested by the company both during the hearing below and in our
office. In fact, such claims were admitted by the company although it alleged
cash liquidity as the main reason for such non-payment.
WHEREFORE, the dispute at Impact Corporation is hereby certified to the
National Labor Relations Commission for compulsory arbitration in accordance
with Article 264 (g) of the Labor Code, as amended.
xxxx
The company is directed to pay all the entitled workers unpaid wages, unpaid
13th month pay and to remit to the Social Security System loan amortizations
and SSS premiums previously deducted from the wages of the workers.[6]

In the meantime, the Petition for Suspension of Payments was dismissed which
was pending before the SEC in an Order[8] dated 12 December 1985. Impact
Corporation resumed operations but only for its winding up and dissolution.[9]
Due to Impact Corporations liability and cash flow problems, all of its assets,
namely, its machineries, equipment, office furniture and fixtures, were sold to
scrap dealers to answer for its arrears in rentals.
On 1 December 1995, the SSS-LCD filed an amended Petition[10] in SSC Case
No. 10048 wherein the directors of Impact Corporation were directly impleaded
as respondents, namely: Eduardo de Leon, Ricardo de Leon,[11] Pacita
Fernandez, Consuelo Villanueva, and petitioner. The amounts sought to be
collected totaled P453,845.78 and P10,856.85 for the periods August 1980 to
December 1984 and August 1981 to July 1984, respectively, and the penalties
for late remittance at the rate of 3% per month from the date the contributions
fell due until fully paid pursuant to Section 22(a) of the Social Security Law,[12]
as amended, in the amounts of P49,941.67 and P2,474,662.82.

Period
Unremitted Amount
Penalties
On 3 July 1985, the Social Security System (SSS), through its Legal and Collection (3% Interest Per Month)
Division (LCD), filed a case before the SSC for the collection of unremitted SSS
TOTAL
premium contributions withheld by Impact Corporation from its employees. The August 1980 to December 1984
case which impleaded Impact Corporation as respondent was docketed as SSC
P 453,845.78
Case No. 10048.[7]
P49, 941.67
503,787.45
Impact Corporation was compulsorily covered by the SSS as an employer
August 1981 to July 1984
effective 15 July 1963 and was assigned Employer I.D. No. 03-2745100-21.
P 10,856.85
P2, 474, 662.82
In answer to the allegations raised in SSC Case No. 10048, Impact Corporation,
2,485,519.67
through its then Vice President Ricardo de Leon, explained in a letter dated 18
July 1985 that it had been confronted with strikes in 1984 and layoffs were
effected thereafter. It further argued that the P402,988.93 is erroneous. It
Summonses were not served upon Eduardo de Leon, Pacita Fernandez, and
explained among other things, that its operations had been suspended and that Consuelo Villanueva, their whereabouts unknown. They were all later
it was waiting for the resolution on its Petition for Suspension of Payments by
determined to be deceased. On the other hand, due to failure to file his
the SEC under SEC Case No. 2423. Despite due notice, the corporation failed to responsive pleading, Ricardo de Leon was declared in default.
appear at the hearings. The SSC ordered the investigating team of the SSS to
determine if it can still file its claim for unpaid premium contributions against
Petitioner filed with the SSC a Motion to Dismiss[13] on grounds of prescription,
the corporation under the Petition for Suspension of Payments.
lack of cause of action and cessation of business, but the Motion was denied for
lack of merit.[14] In her Answer with Counterclaim[15] dated 20 May 1999,

petitioner averred that Impact Corporation had ceased operations in 1980. In

her defense, she insisted that she was a mere director without managerial
functions, and she ceased to be such in 1982. Even as a stockholder and director
of Impact Corporation, petitioner contended that she cannot be made
personally liable for the corporate obligations of Impact Corporation since her
liability extended only up to the extent of her unpaid subscription, of which she
had none since her subscription was already fully paid. The petitioner raised the
same arguments in her Position Paper. [16]
On 23 January 1998, Ricardo de Leon died following the death, too, of Pacita
Fernandez died on 7 February 2000. In an Order dated 11 April 2000, the SSC
directed the System to check if Impact Corporation had leviable properties to
which the investigating team of respondent SSS manifested that the Impact
Corporation had already been dissolved and its assets disposed of.[17]
In a Resolution dated 28 May 2003, the Social Security Commission ruled in
favor of SSS and declared petitioner liable to pay the unremitted contributions
and penalties, stating the following:

In the event the respondents fail to pay their liabilities within the aforestated
period, let a writ of execution be issued, pursuant to Section 22 (c) [2] of the SS
Law, as amended, for the satisfaction of their liabilities to the SSS.[18]

Petitioner filed a Motion for Reconsideration[19] of the afore-quoted Decision

but it was denied for lack of merit in an Order[20] dated 4 August 2004, thus:
Nowhere in the questioned Resolution dated May 28, 2003 is it stated that the
other directors of the defunct Impact Corporation are absolved from their
contribution and penalty liabilities to the SSS. It is certainly farthest from the
intention of the petitioner SSS or this Commission to pin the entire liability of
Impact Corporation on movant Immaculada L. Garcia, to the exclusion of the
directors of the corporation namely: Eduardo de Leon, Ricardo de Leon, Pacita
Fernandez and Conzuelo Villanueva, who were all impleaded as partiesrespondents in this case.

The case record shows that there was failure of service of summonses upon
respondents Eduardo de Leon, Pacita Fernandez and Conzuelo Villanueva, who
WHEREFORE, premises considered, this Commission finds, and so holds, that
are all deceased, for the reason that their whereabouts are unknown. Moreover,
respondents Impact Corporation and/or Immaculada L. Garcia, as director and
neither the legal heirs nor the estate of the defaulted respondent Ricardo de
responsible officer of the said corporation, is liable to pay the SSS the amounts
Leon were substituted as parties-respondents in this case when he died on
of P442,988.93, representing the unpaid SS contributions of their employees for January 23, 1998. Needless to state, the Commission did not acquire jurisdiction
the period August 1980 to December 1984, not inclusive, and P10,856.85,
over the persons or estates of the other directors of Impact Corporation, hence,
representing the balance of the unpaid SS contributions in favor of Donato
it could not validly render any pronouncement as to their liabilities in this case.
Campos, Jaime Mascarenas, Bonifacio Franco and Romeo Fullon for the period
August 1980 to December 1984, not inclusive, as well as the 3% per month
Furthermore, the movant cannot raise in a motion for reconsideration the
penalty imposed thereon for late payment in the amounts of P3,194,548.63 and defense that she was no longer a director of Impact Corporation in 1982, when
P78,441.33, respectively, computed as of April 30, 2003. This is without
she was allegedly eased out by the managing directors of Impact Corporation as
prejudice to the right of the SSS to collect the penalties accruing after April 30,
purportedly shown in the Deed of Sale and Assignment of Shares of Stock dated
2003 and to institute other appropriate actions against the respondent
January 22, 1982. This defense was neither pleaded in her Motion to Dismiss
corporation and/or its responsible officers.
dated January 17, 1996 nor in her Answer with Counterclaim dated May 18,
1999 and is, thus, deemed waived pursuant to Section 1, Rule 9 of the 1997
Should the respondents pay their liability for unpaid SSS contributions within
Rules of Civil Procedure, which has suppletory application to the Revised Rules
sixty (60) days from receipt of a copy of this Resolution, the 3% per month
of Procedure of the Commission.
penalty for late payment thereof shall be deemed condoned pursuant to SSC
Res. No. 397-S.97, as amended by SSC Res. Nos. 112-S.98 and 982-S.99,
Finally, this Commission has already ruled in the Order dated April 27, 1999 that
implementing the provision on condonation of penalty under Section 30 of R.A. since the original Petition was filed by the SSS on July 3, 1985, and was merely
No. 8282.
amended on December 1, 1995 to implead the responsible officers of Impact
Corporation, without changing its causes of action, the same was instituted well

within the 20-year prescriptive period provided under Section 22 (b) of the SS
Law, as amended, considering that the contribution delinquency assessment
covered the period August 1980 to December 1984.

III.
UNDER SECTION 31 OF THE CORPORATION CODE, ONLY DIRECTORS,
TRUSTEES OR OFFICERS WHO PARTICIPATE IN UNLAWFUL ACTS OR ARE GUILTY
OF GROSS NEGLIGENCE AND BAD FAITH SHALL BE PERSONALLY LIABLE.
In view thereof, the instant Motion for Reconsideration is hereby denied for lack OTHERWISE, BEING A MERE STOCKHOLDER, SHE IS LIABLE ONLY TO THE EXTENT
of merit.
OF HER SUBSCRIPTION.

Petitioner elevated her case to the Court of Appeals via a Petition for Review.
Respondent SSS filed its Comment dated 20 January 2005, and petitioner
submitted her Reply thereto on 4 April 2005.

IV.
IMPACT CORPORATION SUFFERED IRREVERSIBLE ECONOMIC LOSSES,
EVENTS WHICH WERE NEITHER DESIRED NOR CAUSED BY ANY ACT OF THE
PETITIONER. THUS, BY REASON OF FORTUITOUS EVENTS, THE PETITIONER
SHOULD BE ABSOLVED FROM LIABILITY.

The Court of Appeals, applying Section 28(f) of the Social Security Law,[21] again V.
RESPONDENT SOCIAL SECURITY SYSTEM FAILED MISERABLY IN
ruled against petitioner. It dismissed the petitioners Petition in a Decision dated EXERTING EFFORTS TO ACQUIRE JURISDICTION OVER THE LEVIABLE ASSETS OF
2 June 2005, the dispositive portion of which reads:
IMPACT CORPORATION, PERSON/S AND/OR ESTATE/S OF THE OTHER
DIRECTORS OR OFFICERS OF IMPACT CORPORATION.
WHEREFORE, premises considered, the petition is DISMISSED for lack of merit.
The assailed Resolution dated 28 May 2003 and the Order dated 4 August 2004 VI.
THE HONORABLE COMMISSION SERIOUSLY ERRED IN NOT
of the Social Security Commission are AFFIRMED in toto.[22]
RENDERING A JUDGMENT BY DEFAULT AGAINST THE DIRECTORS UPON WHOM
IT ACQUIRED JURISDICTION.
Aggrieved, petitioner filed a Motion for Reconsideration of the appellate courts
Decision but her Motion was denied in a Resolution dated 8 December 2005.
Hence, the instant Petition in which petitioner insists that the Court of Appeals
committed grave error in holding her solely liable for the collected but
unremitted SSS premium contributions and the consequent late penalty
payments due thereon. Petitioner anchors her Petition on the following
arguments:
I.
SECTION 28(F) OF THE SSS LAW PROVIDES THAT A MANAGING
HEAD, DIRECTOR OR PARTNER IS LIABLE ONLY FOR THE PENALTIES OF THE
EMPLOYER CORPORATION AND NOT FOR UNPAID SSS CONTRIBUTIONS OF THE
EMPLOYER CORPORATION.
II.
UNDER THE SSS LAW, IT IS THE MANAGING HEADS, DIRECTORS OR
PARTNERS WHO SHALL BE LIABLE TOGETHER WITH THE CORPORATION. IN THIS
CASE, PETITIONER HAS CEASED TO BE A STOCKHOLDER OF IMPACT
CORPORATION IN 1982. EVEN WHILE SHE WAS A STOCKHOLDER, SHE NEVER
PARTICIPATED IN THE DAILY OPERATIONS OF IMPACT CORPORATION.

Based on the foregoing, petitioner prays that the Decision dated 2 June 2005
and the Resolution dated 8 December 2005 of the Court of Appeals be reversed
and set aside, and a new one be rendered absolving her of any and all liabilities
under the Social Security Law.
In sum, the core issue to be resolved in this case is whether or not petitioner, as
the only surviving director of Impact Corporation, can be made solely liable for
the corporate obligations of Impact Corporation pertaining to unremitted SSS
premium contributions and penalties therefore.
As a covered employer under the Social Security Law, it is the obligation of
Impact Corporation under the provisions of Sections 18, 19 and 22 thereof, as
amended, to deduct from its duly covered employees monthly salaries their
shares as premium contributions and remit the same to the SSS, together with
the employers shares of the contributions to the petitioner, for and in their
behalf.

From all indications, the corporation has already been dissolved. Respondents
are now going after petitioner who is the only surviving director of Impact
Corporation.

within such time as the Commission may prescribe. Every employer required to
deduct and to remit such contributions shall be liable for their payment and if
any contribution is not paid to the SSS as herein prescribed, he shall pay besides
the contribution a penalty thereon of three percent (3%) per month from the
A cursory review of the alleged grave errors of law committed by the Court of
date the contribution falls due until paid. If deemed expedient and advisable by
Appeals above reveals there seems to be no dispute as to the assessed liability
the Commission, the collection and remittance of contributions shall be made
of Impact Corporation for the unremitted SSS premiums of its employees for the quarterly or semi-annually in advance, the contributions payable by the
period January 1980 to December 1984.
employees to be advanced by their respective employers: Provided, That upon
separation of an employee, any contribution so paid in advance but not due
There is also no dispute as to the fact that the employees SSS premium
shall be credited or refunded to his employer.
contributions have been deducted from their salaries by Impact Corporation.
Petitioner in assailing the Court of Appeals Decision, distinguishes the penalties
from the unremitted or unpaid SSS premium contributions. She points out that
although the appellate court is of the opinion that the concerned officers of an
employer corporation are liable for the penalties for non-remittance of
premiums, it still affirmed the SSC Resolution holding petitioner liable for the
unpaid SSS premium contributions in addition to the penalties.

Under Section 22(a), every employer is required to deduct and remit such
contributions penalty refers to the 3% penalty that automatically attaches to the
delayed SSS premium contributions. The spirit, rather than the letter of a law
determines construction of a provision of law. It is a cardinal rule in statutory
construction that in interpreting the meaning and scope of a term used in the
law, a careful review of the whole law involved, as well as the intendment of the
law, must be made.[24] Nowhere in the provision or in the Decision can it be
Petitioner avers that under the aforesaid provision, the liability does not include inferred that the persons liable are absolved from paying the unremitted
liability for the unremitted SSS premium contributions.
premium contributions.
Petitioners argument is ridiculous. The interpretation petitioner would like us to
adopt finds no support in law or in jurisprudence. While the Court of Appeals
Decision provided that Section 28(f) refers to the liabilities pertaining to penalty
for the non-remittance of SSS employee contributions, holding that it is distinct
from the amount of the supposed SSS remittances, petitioner mistakenly
concluded that Section 28(f) is applicable only to penalties and not to the
liability of the employer for the unremitted premium contributions. Clearly, a
simplistic interpretation of the law is untenable. It is a rule in statutory
construction that every part of the statute must be interpreted with reference
to the context, i.e., that every part of the statute must be considered together
with the other parts, and kept subservient to the general intent of the whole
enactment.[23] The liability imposed as contemplated under the foregoing
Section 28(f) of the Social Security Law does not preclude the liability for the
unremitted amount. Relevant to Section 28(f) is Section 22 of the same law.
SEC. 22. Remittance of Contributions. -- (a) The contributions imposed in the
preceding Section shall be remitted to the SSS within the first ten (10) days of
each calendar month following the month for which they are applicable or

Elementary is the rule that when laws or rules are clear, it is incumbent upon
the judge to apply them regardless of personal belief or predilections - when the
law is unambiguous and unequivocal, application not interpretation thereof is
imperative.[25] However, where the language of a statute is vague and
ambiguous, an interpretation thereof is resorted to. An interpretation thereof is
necessary in instances where a literal interpretation would be either impossible
or absurd or would lead to an injustice. A law is deemed ambiguous when it is
capable of being understood by reasonably well-informed persons in either of
two or more senses.[26] The fact that a law admits of different interpretations is
the best evidence that it is vague and ambiguous.[27] In the instant case,
petitioner interprets Section 28(f) of the Social Security Law as applicable only to
penalties and not to the liability of the employer for the unremitted premium
contributions. Respondents present a more logical interpretation that is
consistent with the provisions as a whole and with the legislative intent behind
the Social Security Law.
This Court cannot be made to accept an interpretation that would defeat the
intent of the law and its legislators.[28]

Petitioner also challenges the finding of the Court of Appeals that under Section
28(f) of the Social Security Law, a mere director or officer of an employer
corporation, and not necessarily a managing director or officer, can be held
liable for the unpaid SSS premium contributions.

acts or are guilty of gross negligence and bad faith shall be personally liable, and
that being a mere stockholder, she is liable only to the extent of her
subscription.
Section 31 of the Corporation Code, stipulating on the liability of directors,
trustees, or officers, provides:

Section 28(f) of the Social Security Law provides the following:

SEC. 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.
Basic is the rule that a corporation is invested by law with a personality separate
and distinct from that of the persons composing it as well as from that of any
other legal entity to which it may be related. A corporation is a juridical entity
Petitioner invokes the rule in statutory construction called ejusdem generic; that with legal personality separate and distinct from those acting for and in its
is, where general words follow an enumeration of persons or things, by words of behalf and, in general, from the people comprising it. Following this, the general
a particular and specific meaning, such general words are not to be construed in rule applied is that obligations incurred by the corporation, acting through its
their widest extent, but are to be held as applying only to persons or things of
directors, officers and employees, are its sole liabilities.[30] A director, officer,
the same kind or class as those specifically mentioned. According to petitioner, and employee of a corporation are generally not held personally liable for
to be held liable under Section 28(f) of the Social Security Law, one must be the obligations incurred by the corporation.
managing head, managing director, or managing partner. This Court though
finds no need to resort to statutory construction. Section 28(f) of the Social
Being a mere fiction of law, however, there are peculiar situations or valid
Security Law imposes penalty on:
grounds that can exist to warrant the disregard of its independent being and the
lifting of the corporate veil. This situation might arise when a corporation is used
(1)
the managing head;
to evade a just and due obligation or to justify a wrong, to shield or perpetrate
fraud, to carry out other similar unjustifiable aims or intentions, or as a
(2)
directors; or
subterfuge to commit injustice and so circumvent the law.[31] Thus, Section 31
of the Corporation Law provides:
(3)
partners, for offenses committed by a juridical person
Taking a cue from the above provision, a corporate director, a trustee or an
officer, may be held solidarily liable with the corporation in the following
The said provision does not qualify that the director or partner should likewise
instances:
be a managing director or managing partner.[29] The law is clear and
unambiguous.
1. When directors and trustees or, in appropriate cases, the officers of
a corporation-Petitioner nonetheless raises the defense that under Section 31 of the
(a) vote for or assent to patently unlawful acts of the corporation;
Corporation Code, only directors, trustees or officers who participate in unlawful (b) act in bad faith or with gross negligence in directing the corporate affairs;
(f) If the act or omission penalized by this Act be committed by an association,
partnership, corporation or any other institution, its managing head, directors or
partners shall be liable to the penalties provided in this Act for the offense.
This Court agrees in petitioners observation that the SSS did not even deny nor
rebut the claim that petitioner was not the managing head of Impact
Corporation. However, the Court of Appeals rightly held that petitioner, as a
director of Impact Corporation, is among those officers covered by Section 28(f)
of the Social Security Law.

(c) are guilty of conflict of interest to the prejudice of the corporation, its
stockholders or members, and other persons.
2. When a director or officer has consented to the issuance of watered stocks
or who, having knowledge thereof, did not forthwith file with the corporate
secretary his written objection thereto.
3. When a director, trustee or officer has contractually agreed or stipulated to
hold himself personally and solidarily liable with the Corporation.

(h) Any employer who, after deducting the monthly contributions or loan
amortizations from his employees compensation, fails to remit the said
deductions to the SSS within thirty (30) days from the date they became due
shall be presumed to have misappropriated such contributions or loan
amortizations and shall suffer the penalties provided in Article Three hundred
fifteen of the Revised Penal Code.
(i) Criminal action arising from a violation of the provisions of this Act may be
commenced by the SSS or the employee concerned either under this Act or in
appropriate cases under the Revised Penal Code: x x x.

4. When a director, trustee or officer is made, by specific provision of law,

personally liable for his corporate action. [32]
The aforesaid provision states:
SEC. 31. Liability of directors, trustees or officers. - Directors or trustees who
willfully and knowingly vote for or assent to patently unlawful acts of the
corporation or who are guilty of gross negligence or bad faith in directing the
affairs of the corporation or acquire any personal or pecuniary interest in
conflict with their duty as such directors, or trustees shall be liable jointly and
severally for all damages resulting therefrom suffered by the corporation, its
stockholders or members and other persons.

Respondents would like this Court to apply another exception to the rule that
the persons comprising a corporation are not personally liable for acts done in
the performance of their duties.
The Court of Appeals in the appealed Decision stated:

Anent the unpaid SSS contributions of Impact Corporations employees, the

officers of a corporation are liable in behalf of a corporation, which no longer
exists or has ceased operations. Although as a rule, the officers and members of
a corporation are not personally liable for acts done in performance of their
duties, this rule admits of exception, one of which is when the employer
corporation is no longer existing and is unable to satisfy the judgment in favor of
the employee, the officers should be held liable for acting on behalf of the
The situation of petitioner, as a director of Impact Corporation when said
corporation. Following the foregoing pronouncement, petitioner, as one of the
corporation failed to remit the SSS premium contributions falls exactly under the directors of Impact Corporation, together with the other directors of the
fourth situation. Section 28(f) of the Social Security Law imposes a civil liability
defunct corporation, are liable for the unpaid SSS contributions of their
for any act or omission pertaining to the violation of the Social Security Law, to employees.[33]
wit:
(f) If the act or omission penalized by this Act be committed by an association,
On the other hand, the SSC, in its Resolution, presented this discussion:
partnership, corporation or any other institution, its managing head, directors or
partners shall be liable to the penalties provided in this Act for the offense.
Although as a rule, the officers and members of a corporation are not personally
liable for acts done in the performance of their duties, this rule admits of
exceptions, one of which is when the employer corporation is no longer existing
In fact, criminal actions for violations of the Social Security Law are also provided and is unable to satisfy the judgment in favor of the employee, the officers
under the Revised Penal Code. The Social Security Law provides, in Section 28
should be held liable for acting on behalf of the corporation. x x x.[34]
thereof, to wit:

The rationale cited by respondents in the two preceding paragraphs need not
have been applied because the personal liability for the unremitted SSS
premium contributions and the late penalty thereof attaches to the petitioner as
a director of Impact Corporation during the period the amounts became due
and demandable by virtue of a direct provision of law.
Petitioners defense that since Impact Corporation suffered irreversible
economic losses, and by reason of fortuitous events, she should be absolved
from liability, is also untenable. The evidence adduced totally belies this claim. A
reference to the copy of the Petition for Suspension of Payments filed by Impact
Corporation on 18 March 1983 before the SEC contained an admission that:

The Social Security System is a government agency imbued with a salutary

purpose to carry out the policy of the State to establish, develop, promote and
perfect a sound and viable tax exempt social security system suitable to the
needs of the people throughout the Philippines which shall promote social
justice and provide meaningful protection to members and their beneficiaries
against the hazards of disability, sickness, maternity, old-age, death and other
contingencies resulting in loss of income or financial burden.

The soundness and viability of the funds of the SSS in turn depends on the
contributions of its covered employee and employer members, which it invests
[I]t has been and still is engaged in business and has been and still is engaged in in order to deliver the basic social benefits and privileges to its members. The
the business of manufacturing aluminum tube containers and in brief, it is an
entitlement to and amount of benefits and privileges of the covered members
on-going, viable, and profitable enterprise which has sufficient assets and actual are contribution-based. Both the soundness and viability of the funds of the SSS
and potential income-generation capabilities.
as well as the entitlement and amount of benefits and privileges of its members
are adversely affected to a great extent by the non-remittance of the muchneeded contributions.[37]
The foregoing document negates petitioners assertion and supports the
contention that during the period involved Impact Corporation was still engaged
in business and was an ongoing, viable, profitable enterprise. In fact, the latest
The sympathy of the law on social security is toward its beneficiaries. This Court
SSS form RIA submitted by Impact Corporation is dated 7 May 1984. The
will not turn a blind eye on the perpetration of injustice. This Court cannot and
assessed SSS premium contributions and penalty are obligations imposed upon will not allow itself to be made an instrument nor be privy to any attempt at the
Impact Corporation by law, and should have been remitted to the SSS within the perpetration of injustice.
first 10 days of each calendar month following the month for which they are
applicable or within such time as the SSC prescribes.[35]
Following the doctrine laid down in Laguna Transportation Co., Inc. v. Social
Security System,[38] this Court rules that although a corporation once formed is
This Court also notes the evident failure on the part of SSS to issue a judgment
conferred a juridical personality separate and distinct from the persons
in default against Ricardo de Leon, who was the vice-president and officer of the comprising it, it is but a legal fiction introduced for purposes of convenience and
corporation, upon his non-filing of a responsive pleading after summons was
to subserve the ends of justice. The concept cannot be extended to a point
served on him. As can be gleaned from Section 11 of the SSS Revised Rules of
beyond its reasons and policy, and when invoked in support of an end
Procedure, the Commissioner is mandated to render a decision either granting subversive of this policy, will be disregarded by the courts.
or denying the petition. Under the aforesaid provision, if respondent fails to
answer within the time prescribed, the Hearing Commissioner may, upon
WHEREFORE, pursuant to the foregoing, the Decision of the Court of Appeals
motion of petitioner, or motu proprio, declare respondent in default and
dated 2 June 2005 in CA-G.R. SP No. 85923 is hereby AFFIRMED WITH FINALITY.
proceed to receive petitioners evidence ex parte and thereafter recommend to Petitioner Immaculada L. Garcia, as sole surviving director of Impact Corporation
the Commission either the granting or denial of the petition as the evidence may is hereby ORDERED to pay for the collected and unremitted SSS contributions of
warrant.[36]
Impact Corporation. The case is REMANDED to the SSS for computation of the
exact amount and collection thereof.
On a final note, this Court sees it proper to quote verbatim respondents
prefatory statement in their Comment:
SO ORDERED

MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice
[1] Penned by Associate Justice Eugenio S. Labitoria with Associate Justices
Eliezer R. De Los Santos and Arturo D. Brion, concurring; rollo, pp. 32-43.
[2] Id. at 44.

[3] General Information Sheet of Impact Corporation Corporation, as of 31

December 1974.
[4] Records, pp. 265-283.
[5] Id. at 390-393.
[6] Id. at 392.
[7] Id. at 1-3.
[8] Id. at 395-400.
[9] Id. at 192-196.
[10] Id. at 223-233.
[11] Summons were served on Ricardo de Leon; See records, p. 259.
[12] SEC. 22. Remittance of Contributions. -- (a) The contribution imposed in the
preceding Section shall be remitted to the SSS within the first ten (10) days of
each calendar month following the month for which they are applicable or
within such time as the Commission may prescribe. Every employer required to
deduct and to remit such contributions shall be liable for their payment and if
any contribution is not paid to the SSS as herein prescribed, he shall pay besides
the contribution a penalty thereon of three percent (3%) per month from the
date the contribution falls due until paid. If deemed expedient and advisable by
the Commission, the collection and remittance of contributions shall be made
quarterly or semi-annually in advance, the contributions payable by the
employees to be advanced by their respective employers: Provided, That upon
separation of an employee, any contribution so paid in advance but not due
shall be credited or refunded to his employer.
[13] Dated 17 January 1996.
[14] Order issued by the SSC on 27 April 1999; records, pp. 320-325
[15] Records, pp. 336-345.
[16] Id. at 493-501.
[17] Order dated 11 April 2000.
[18] Rollo, pp. 66-67.
[19] Dated 16 June 2003.
[20] Adopted/promulgated by the SSC en banc under its Resolution No. 474 on 4
August 2004; Penned by Commissioner Aurora R. Arnaez; rollo, pp. 68-69.
[21] SEC. 28. Penal Clause. x x x.
(e) Whoever fails or refuses to comply with the provisions promulgated by the
Commission, shall be punished by a fine of not less than Five thousand pesos
(P5,000.00) nor more than Twenty thousand pesos (P20,000.00), or
imprisonment for not less than six (6) years and one (1) day nor more than
twelve (12) years, or both, at the discretion of the court: Provided, That where
the violation consists in failure or refusal to register employees or himself, in
case of the covered self-employed or to deduct contributions from employees

compensation and remit the same to the SSS, the penalty shall be a fine of not
less Five thousand pesos (P5,000.00) nor more than Twenty thousand pesos
(P20,000.00) and imprisonment for not less than six (6) years and one (1) day
nor more than twelve (12) years.
(f) If the act or omission penalized by this Act be committed by an association,
partnership, corporation or any other institution, its managing head, directors or
partners shall be liable to the penalties provided in this Act for the offense.
[22] Rollo, pp. 41-42; citations omitted.
[23] Paras v. COMELEC, 332 Phil. 56, 64 (1996).
[24] Alpha Investigation and Security Agency, Inc. v. National Labor Relations
Commission, 339 Phil. 40, 44 (1997).
[25] De Guzman, Jr. v. Sison, 407 Phil. 351, 368-369 (2001), as cited in Villamor
Golf Club v. Pehid, G.R. No. 166152, 4 December 2005, 472 SCRA 36, 47-48.
[26] Del Mar v. Phil. Amusement and Gaming Corp., 400 Phil. 307, 357 (2000).
[27] Villamor Golf Club v. Pehid, supra note 25; Abello v. Commissioneer of
Internal Revenue, 23 February 2005, 452 SCRA 162, 169; Chartered Bank
Employees Association v. Ople, G.R. No. L-44717, 28 August 1985, 138 SCRA
273, 281.
[28] Escosura v. San Miguel Brewery, Inc., 114 Phil. 225 (1962).
[29] Decision, page 8.
[30] Uichico v. National Labor Relations Commission, 339 Phil. 242, 252 (1997),
citing Santos v. National Labor Relations Commission, 325 Phil. 145, 158 (1996).
[31] Santos v. National Labor Relations Commission, id.
[32] Philex Gold Philippines, Inc. v. Philex Bulawan Supervisors Union, G.R. No.
149758, 25 August 2005, 468 SCRA 111, 124.
[33] Rollo, p. 39.
[34] Id. at 66.
[35] The contributions imposed in the preceding section shall be remitted to the
SSS within the first ten (10) days of each calendar month following the month
for which they are applicable or within such time as the Commission may
prescribe... (Section 22, R. A. No. 8282 SSS Law).
[36] Section 11, SSS Rules of Procedure.
[37] Rollo, pp. 51-52.
[38] 107 Phil. 833 (1960).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2348

February 27, 1950

GREGORIO PERFECTO, plaintiff-appellee,

vs.
BIBIANO MEER, Collector of Internal Revenue, defendant-appellant.
First Assistant Solicitor General Roberto A. Gianzon and Solicitor Francisco
Carreon for oppositor and appellant.
Gregorio Perfecto in his own behalf.
BENGZON, J.:
In April, 1947 the Collector of Internal Revenue required Mr. Justice Gregorio
Perfecto to pay income tax upon his salary as member of this Court during the
year 1946. After paying the amount (P802), he instituted this action in the
Manila Court of First Instance contending that the assessment was illegal, his
salary not being taxable for the reason that imposition of taxes thereon would
reduce it in violation of the Constitution.
The Manila judge upheld his contention, and required the refund of the amount
collected. The defendant appealed.
The death of Mr. Justice Perfecto has freed us from the embarrassment of
passing upon the claim of a colleague. Still, as the outcome indirectly affects all
the members of the Court, consideration of the matter is not without its vexing
feature. Yet adjudication may not be declined, because (a) we are not legally
disqualified; (b) jurisdiction may not be renounced, ad it is the defendant who
appeals to this Court, and there is no other tribunal to which the controversy
may be referred; (c) supreme courts in the United States have decided similar
disputes relating to themselves; (d) the question touches all the members of the
judiciary from top to bottom; and (e) the issue involves the right of other
constitutional officers whose compensation is equally protected by the
Constitution, for instance, the President, the Auditor-General and the members
of the Commission on Elections. Anyway the subject has been thoroughly

discussed in many American lawsuits and opinions, and we shall hardly do

First period. No attempts was made to tax the compensation of Federal judges
nothing more than to borrow therefrom and to compare their conclusions to
up to 1862 1.
local conditions. There shall be little occasion to formulate new propositions, for
the situation is not unprecedented.
Second period. 1862-1918. In July, 1862, a statute was passed subjecting the
salaries of "civil officers of the United States" to an income tax of three per cent.
Our Constitution provides in its Article VIII, section 9, that the members of the
Revenue officers, construed it as including the compensation of all judges; but
Supreme Court and all judges of inferior courts "shall receive such compensation Chief Justice Taney, speaking for the judiciary, wrote to the Secretary of the
as may be fixed by law, which shall not be diminished during their continuance
Treasury a letter of protest saying, among other things:
in office." It also provides that "until Congress shall provide otherwise, the Chief
Justice of the Supreme Court shall receive an annual compensation of sixteen
The act in question, as you interpret it, diminishes the compensation of every
thousand pesos". When in 1945 Mr. Justice Perfecto assumed office, Congress
judge 3 per cent, and if it can be diminished to that extent by the name of a tax,
had not "provided otherwise", by fixing a different salary for associate justices.
it may, in the same way, be reduced from time to time, at the pleasure of the
He received salary at the rate provided by the Constitution, i.e., fifteen thousand legislature.
pesos a year.
The judiciary is one of the three great departments of the government, created
Now, does the imposition of an income tax upon this salary in 1946 amount to a and established by the Constitution. Its duties and powers are specifically set
diminution thereof?.
forth, and are of a character that requires it to be perfectly independent of the
two other departments, and in order to place it beyond the reach and above
A note found at page 534 of volume 11 of the American Law Reports answers
even the suspicion of any such influence, the power to reduce their
the question in the affirmative. It says:
compensation is expressly withheld from Congress, and excepted from their
powers of legislation.
Where the Constitution of a state provides that the salaries of its judicial officers
shall not be dismissed during their continuance in office, it had been held that
Language could not be more plain than that used in the Constitution. It is,
the state legislature cannot impose a tax upon the compensation paid to the
moreover, one of its most important and essential provisions. For the articles
judges of its court. New Orleans v. Lea (1859) 14 La. Ann. 194; Opinion of
which limits the powers of the legislative and executive branches of the
Attorney-General if N. C. (1856) 48 N. C. (3 Jones, L.) Appx. 1; Re Taxation of
government, and those which provide safeguards for the protection of the
Salaries of Judges (1902) 131 N. C. 692, 42 S. E. 970; Com. ex. rel. Hepburn v.
citizen in his person and property, would be of little value without a judiciary to
Mann (1843) 5 Watts & S,. (Pa.) 403 [but see to the contrary the earlier and
uphold and maintain them, which was free from every influence, direct and
much criticized case of Northumberland county v. Chapman (1829) 2 Rawle (Pa.) indirect, that might by possibility in times of political excitement warp their
73]*
judgments.
A different rule prevails in Wisconsin, according to the same annotation.
Another state holding the contrary view is Missouri.

Upon these grounds I regard an act of Congress retaining in the Treasury a

portion of the Compensation of the judges, as unconstitutional and void2.

The Constitution of the United States, likes ours, forbids the diminution of the
compensation of Judges of the Supreme Court and of inferior courts. The
Federal Governments has an income tax law. Does it embrace the salaries of
federal judges? In answering this question, we should consider four periods:

The protest was unheeded, although it apparently bore the approval of the
whole Supreme Court, that ordered it printed among its records. But in 1869
Attorney-General Hoar upon the request of the Secretary of the Treasury
rendered an opinion agreeing with the Chief Justice. The collection of the tax
was consequently discontinued and the amounts theretofore received were all

refunded. For half a century thereafter judges' salaries were not taxed as
income.3
Third period. 1919-1938. The Federal Income Tax Act of February 24, 1919
expressly provided that taxable income shall include "the compensation of the
judges of the Supreme Court and inferior courts of the United States". Under
such Act, Walter Evans, United States judge since 1899, paid income tax on his
salary; and maintaining that the impost reduced his compensation, he sued to
recover the money he had delivered under protest. He was upheld in 1920 by
the Supreme Court in an epoch-making decision.*, explaining the purpose,
history and meaning of the Constitutional provision forbidding impairment of
judicial salaries and the effect of an income tax upon the salary of a judge.

xxx

xxx

xxx

At a later period John Marshall, whose rich experience as lawyer, legislator, and
chief justice enable him to speak as no one else could, tersely said (debates Va.
Gonv. 1829-1831, pp. 616, 619): . . . Our courts are the balance wheel of our
whole constitutional system; and our is the only constitutional system so
balanced and controlled. Other constitutional systems lacks complete poise and
certainly of operation because they lack the support and interpretation of
authoritative, undisputable courts of law. It is clear beyond all need of
exposition that for the definite maintenance of constitutional understandings it
is indispensable, alike for the preservation of the liberty of the individual and for
the preservation of the integrity of the powers of the government, that there
With what purpose does the Constitution provide that the compensation of the should be some nonpolitical forum in which those understandings can be
judges "shall not be diminished during their continuance in office"? Is it primarily impartially debated and determined. That forum our courts supply. There the
to benefit the judges, or rather to promote the public weal by giving them that individual may assert his rights; there the government must accept definition of
independence which makes for an impartial and courageous discharge of the
its authority. There the individual may challenge the legality of governmental
judicial function? Does the provision merely forbid direct diminution, such as
action and have it adjudged by the test of fundamental principles, and that test
expressly reducing the compensation from a greater to a less sum per year, and the government must abide; there the government can check the too aggressive
thereby leave the way open for indirect, yet effective, diminution, such as
self-assertion of the individual and establish its power upon lines which all can
withholding or calling back a part as tax on the whole? Or does it mean that the comprehend and heed. The constitutional powers of the courts constitute the
judge shall have a sure and continuing right to the compensation, whereon he
ultimate safeguard alike of individual privilege and of governmental prerogative.
confidently may rely for his support during his continuance in office, so that he It is in this sense that our judiciary is the balance wheel of our entire system; it is
need have no apprehension lest his situation in this regard may be changed to
meant to maintain that nice adjustment between individual rights and
his disadvantage?
governmental powers which constitutes political liberty. Constitutional
government in the United States, pp. 17, 142.
The Constitution was framed on the fundamental theory that a larger measure
of liberty and justice would be assured by vesting the three powers the
Conscious in the nature and scope of the power being vested in the national
legislative, the executive, and the judicial in separate departments, each
courts, recognizing that they would be charge with responsibilities more delicate
relatively independent of the others and it was recognized that without this
and important than any ever before confide to judicial tribunals, and
independence if it was not made both real and enduring the separation
appreciating that they were to be, in the words of George Washington, "the
would fail of its purpose. all agreed that restraints and checks must be imposed keystone of our political fabric", the convention with unusual accord
to secure the requisite measure of independence; for otherwise the legislative
incorporated in the Constitution the provision that the judges "shall hold their
department, inherently the strongest, might encroach on or even come to
offices during good behavior, and shall at stated times receive for their services
dominate the others, and the judicial, naturally the weakest, might be dwarf or a compensation which shall not be diminished during their continuance in
swayed by the other two, especially by the legislative.
office." Can there be any doubt that the two things thus coupled in place the
clause in respect of tenure during good behaviour and that in respect of an
The particular need for making the judiciary independent was elaborately
undiminishable compensation-were equally coupled in purpose? And is it not
pointed our by Alexander Hamilton in the Federalist, No. 78, from which we
plain that their purposes was to invest the judges with an independence in
excerpt the following:
keeping with the delicacy and importance of their task, and with the imperative

need for its impartial and fearless performance? Mr. Hamilton said in
explanation and support of the provision (Federalist No. 79): "Next to
permanency in office, nothing can contribute more to the independence of the
judges than a fixed provision for their support. . . . In the general course of
human nature, a power over a man's subsistence amounts to a power over his
will.
xxx

xxx

xxx

These considerations make it very plain, as we think, that the primary purpose
of the prohibition against diminution was not to benefit the judges, but, like the
clause in respect of tenure, to attract good and competent men to the bench,
and to promote that independence of action and judgment which is essential to
the maintenance of the guaranties, limitations, and pervading principles of the
constitution, and to the admiration of justice without respect to persons, and
with equal concern for the poor and the rich.
xxx

xxx

Evans v. Gore had been decided. The Supreme Court of the United States in
1925 reaffirmed that decision. It overruled the distinction offered by SolicitorGeneral Beck that Judge Graham took office after the income tax had been
levied on judicial salaries, (Evans qualified before), and that Congress had power
"to impose taxes which should apply to the salaries of Federal judges appointed
after the enactment of the taxing statute." (The law had made no distinction as
to judges appointed before or after its passage)
Fourth period. 1939 Foiled in their previous attempts, the Revenue men
persisted, and succeeded in inserting in the United States Revenue Act of June,
1932 the modified proviso that "gross income" on which taxes were payable
included the compensation "of judges of courts of the United States taking
office after June 6, 1932". Joseph W. Woodrough qualified as United States
circuit judge on May 1, 1933. His salary as judge was taxed, and before the
Supreme Court of the United States the issue of decrease of remuneration again
came up. That court, however, ruled against him, declaring (in 1939) that
Congress had the power to adopt the law. It said:

xxx

The question immediately before us is whether Congress exceeded its

constitutional power in providing that United States judges appointed after the
Revenue Act of 1932 shall not enjoy immunity from the incidence of taxation to
which everyone else within the defined classes of income is subjected. Thereby,
If the tax in respect of his compensation be prohibited, it can find no justification of course, Congress has committed itself to the position that a nonin the taxation of other income as to which there is no prohibition, for, of
discriminatory tax laid generally on net income is not, when applied to the
course, doing what the Constitution permits gives no license to do what it
income of federal judge, a diminution of his salary within the prohibition of
prohibits.
Article 3, Sec. 1 of the Constitution. To suggest that it makes inroads upon the
independence of judges who took office after the Congress has thus charged
The prohibition is general, contains no excepting words, and appears to be
them with the common duties of citizenship, by making them bear their aliquot
directed against all diminution, whether for one purpose or another; and the
share of the cost of maintaining the Government, is to trivialize the great
reason for its adoption, as publicly assigned at the time and commonly accepted historic experience on which the framers based the safeguards of Article 3, Sec.
ever since, make with impelling force for the conclusion that the fathers of the
1. To subject them to a general tax is merely to recognize that judges also are
Constitution intended to prohibit diminution by taxation as well as otherwise,
citizens, and that their particular function in government does not generate an
that they regarded the independence of the judges as of far greater importance immunity from sharing with their fellow citizens the material burden of the
than any revenue that could come from taxing their salaries. (American law
government whose Constitution and laws they are charged with administering.
Reports, annotated, Vol. 11, pp. 522-25; Evans vs. Gore, supra.)
(O'Malley vs. Woodrough, 59 S. Ct. 838, A. L. R. 1379.)
But it is urged that what plaintiff was made to pay back was an income tax, and
that a like tax was exacted of others engaged in private employment.

In September 1, 1919, Samuel J. Graham assumed office as judge of the Unites

States court of claims. His salary was taxed by virtue of the same time income
tax of February 24, 1919. At the time he qualified, a statute fixed his salary at
P7,500. He filed action for reimbursement, submitting the same theory on which

Now, the case for the defendant-appellant Collector of Internal Revenue is

premised mainly on this decision (Note A). He claims it holds "that federal
judges are subject to the payment of income taxes without violating the
constitutional prohibition against the reduction of their salaries during their

continuance in office", and that it "is a complete repudiation of the ratio

view, and virtually strikes from the amendment the words "from whatever
decidenci of Evans vs. Gore". To grasp the full import of the O'Malley precedent, source derived". (Harvard law Review, vol. 34, p. 70)
we should bear in mind that:
The Unites States Court's shift of position5 might be attributed to the above
1. It does not entirely overturn Miles vs. Graham. "To the extent that what the
detraction which, without appearing on the surface, led to Frankfurter's
Court now says is inconsistent with what said in Miles vs. Graham, the latter can sweeping expression about judges being also citizens liable to income tax. But it
not survive", Justice Frankfurter announced.
must be remembered that undisclosed factor the 16th Amendment has no
counterpart in the Philippine legal system. Our Constitution does not repeat it.
2. It does not expressly touch nor amend the doctrine in Evans vs, Gore,
Wherefore, as the underlying influence and the unuttered reason has no validity
although it indicates that the Congressional Act in dispute avoided in part the
in this jurisdiction, the broad generality loses much of its force.
consequences of that case.
Anyhow the O'Malley case declares no more than that Congress may validly
Carefully analyzing the three cases (Evans, Miles and O'Malley) and piecing them enact a law taxing the salaries of judges appointed after its passage. Here in the
together, the logical conclusion may be reached that although Congress may
Philippines no such law has been approved.
validly declare by law that salaries of judges appointed thereafter shall be taxed
as income (O'Malley vs. Woodrough) it may not tax the salaries of those judges Besides, it is markworthy that, as Judge Woodrough had qualified after the
already in office at the time of such declaration because such taxation would
express legislative declaration taxing salaries, he could not very well complain.
diminish their salaries (Evans vs. Gore; Miles vs. Graham). In this manner the
The United States Supreme Court probably had in mind what in other cases was
rationalizing principle that will harmonize the allegedly discordant decision may maintained, namely, that the tax levied on the salary in effect decreased the
be condensed.
emoluments of the office and therefore the judge qualified with such reduced
emoluments.6
By the way, Justice Frankfurter, writing the O'Malley decision, says the Evans
precedent met with disfavor from legal scholarship opinion. Examining the
The O'Malley ruling does not cover the situation in which judges already in office
issues of Harvard Law review at the time of Evans vs. Gore (Frankfurter is a
are made to pay tax by executive interpretation, without express legislative
Harvard graduate and professor), we found that such school publication
declaration. That state of affairs is controlled by the administrative and judicial
criticized it. Believing this to be the "inarticulate consideration that may have
standards herein-before described in the "second period" of the Federal
influenced the grounds on which the case went off"4, we looked into the
Government, namely, the views of Chief Justice Taney and of Attorney-General
criticism, and discovered that it was predicated on the position that the 16th
Hoar and the constant practice from 1869 to 1938, i.e., when the Income Tax
Amendment empowered Congress "to collect taxes on incomes from whatever Law merely taxes "income" in general, it does not include salaries of judges
source derived" admitting of no exception. Said the Harvard Law Journal:
protected from diminution.
In the recent case of Evans vs. Gore the Supreme Court of the United States
decided that by taxing the salary of a federal judge as a part of his income,
Congress was in effect reducing his salary and thus violating Art. III, sec. 1, of the
Constitution. Admitting for the present purpose that such a tax really is a
reduction of salary, even so it would seem that the words of the amendment
giving power to tax 'incomes, from whatever source derived', are sufficiently
strong to overrule pro tanto the provisions of Art. III, sec. 1. But, two years ago,
the court had already suggested that the amendment in no way extended the
subjects open to federal taxation. The decision in Evans vs. Gore affirms that

In this connection the respondent would make capital of the circumstance that
the Act of 1932, upheld in the O'Malley case, has subsequently been amended
by making it applicable even to judges who took office before 1932. This shows,
the appellant argues, that Congress interprets the O'Malley ruling to permit
legislative taxation of the salary of judges whether appointed before the tax or
after. The answer to this is that the Federal Supreme Court expressly withheld
opinion on that amendment in the O'Malley case. Which is significant. Anyway,
and again, there is here no congressional directive taxing judges' salaries.

Wherefore, unless and until our Legislature approves an amendment to the

Income Tax Law expressly taxing "that salaries of judges thereafter appointed",
the O'Malley case is not relevant. As in the United States during the second
period, we must hold that salaries of judges are not included in the word
"income" taxed by the Income Tax Law. Two paramount circumstances may
additionally be indicated, to wit: First, when the Income Tax Law was first
applied to the Philippines 1913, taxable "income" did not include salaries of
judicial officers when these are protected from diminution. That was the
prevailing official belief in the United States, which must be deemed to have
been transplanted here;7 and second, when the Philippine Constitutional
Convention approved (in 1935) the prohibition against diminution off the
judges' compensation, the Federal principle was known that income tax on
judicial salaries really impairs them. Evans vs. Gore and Miles vs. Graham were
then outstanding doctrines; and the inference is not illogical that in restraining
the impairment of judicial compensation the Fathers of the Constitution
intended to preclude taxation of the same.8

doctrine therein enunciated has resolved the issue of the taxability of judges'
salaries into a question of policy. Forthwith, His Excellency the President decided
that the best policy to adopt would be to collect income and additional
residence taxes from the President of the Philippines, the members of the
Judiciary, and the Auditor General, and the undersigned was authorized to act
accordingly.

It seems that prior to the O'Malley decision the Philippine Government did not
collect income tax on salaries of judges. This may be gleaned from General
Circular No. 449 of the Department of Finance dated March 4, 1940, which says
in part:

This is not proclaiming a general tax immunity for men on the bench. These pay
taxes. Upon buying gasoline, or other commodities, they pay the corresponding
duties. Owning real property, they pay taxes thereon. And on incomes other
than their judicial salary, assessments are levied. It is only when the tax is
charged directly on their salary and the effect of the tax is to diminish their
official stipend that the taxation must be resisted as an infringement of the
fundamental charter.

xxx

xxx

xxx

The question of whether or not the salaries of judges should be taken into
account in computing additional residence taxes is closely linked with the
liability of judges to income tax on their salaries, in fact, whatever resolution is
adopted with respect to either of said taxes be followed with respect to the
other. The opinion of the Supreme Court of the United States in the case of
O'Malley v. Woodrough, 59 S. Ct. 838, to which the attention of this department
has been drawn, appears to have enunciated a new doctrine regarding the
liability of judges to income tax upon their salaries. In view of the fact that the
question is of great significance, the matter was taken up in the Council of State,
and the Honorable, the Secretary of Justice was requested to give an opinion on
whether or not, having in mind the said decision of the Supreme Court of the
United States in the case of O'Malley v. Woodrough, there is justification in
reversing our present ruling to the effect that judges are not liable to tax on
their salaries. After going over the opinion of the court in the said case, the
Honorable, the Secretary of Justice, stated that although the ruling of the
Supreme Court of the United States is not binding in the Philippines, the

In view of the foregoing, income and additional residence taxes should be levied
on the salaries received by the President of the Philippines, members of the
Judiciary, and the Auditor General during the calendar year 1939 and thereafter.
. . . . (Emphasis ours.)
Of course, the Secretary of Justice correctly opined that the O'Malley decision
"resolved the issue of taxability of judges' salaries into a question of policy." But
that policy must be enunciated by Congressional enactment, as was done in the
O'Malley case, not by Executive Fiat or interpretation.

Judges would indeed be hapless guardians of the Constitution if they did not
perceive and block encroachments upon their prerogatives in whatever form.
The undiminishable character of judicial salaries is not a mere privilege of judges
personal and therefore waivable but a basic limitation upon legislative or
executive action imposed in the public interest. (Evans vs. Gore)
Indeed the exemption of the judicial salary from reduction by taxation is not
really a gratuity or privilege. Let the highest court of Maryland speak:
The exemption of the judicial compensation from reduction is not in any true
sense a gratuity, privilege or exemption. It is essentially and primarily
compensation based upon valuable consideration. The covenant on the part of
the government is a guaranty whose fulfillment is as much as part of the
consideration agreed as is the money salary. The undertaking has its own
particular value to the citizens in securing the independence of the judiciary in

crises; and in the establishment of the compensation upon a permanent

foundation whereby judicial preferment may be prudently accepted by those
who are qualified by talent, knowledge, integrity and capacity, but are not
possessed of such a private fortune as to make an assured salary an object of
personal concern. On the other hand, the members of the judiciary relinquish
their position at the bar, with all its professional emoluments, sever their
connection with their clients, and dedicate themselves exclusively to the
discharge of the onerous duties of their high office. So, it is irrefutable that they
guaranty against a reduction of salary by the imposition of a tax is not an
exemption from taxation in the sense of freedom from a burden or service to
which others are liable. The exemption for a public purpose or a valid
consideration is merely a nominal exemption, since the valid and full
consideration or the public purpose promoted is received in the place of the tax.
Theory and Practice of Taxation (1900), D. A. Wells, p. 541. (Gordy vs. Dennis
(Md.) 1939, 5 Atl. Rep. 2d Series, p. 80)
It is hard to see, appellants asserts, how the imposition of the income tax may
imperil the independence of the judicial department. The danger may be
demonstrated. Suppose there is power to tax the salary of judges, and the
judiciary incurs the displeasure of the Legislature and the Executive. In
retaliation the income tax law is amended so as to levy a 30 per cent on all
salaries of government officials on the level of judges. This naturally reduces the
salary of the judges by 30 per cent, but they may not grumble because the tax is
general on all receiving the same amount of earning, and affects the Executive
and the Legislative branches in equal measure. However, means are provided
thereafter in other laws, for the increase of salaries of the Executive and the
Legislative branches, or their perquisites such as allowances, per diems,
quarters, etc. that actually compensate for the 30 per cent reduction on their
salaries. Result: Judges compensation is thereby diminished during their
incumbency thanks to the income tax law. Consequence: Judges must "toe the
line" or else. Second consequence: Some few judges might falter; the great
majority will not. But knowing the frailty of human nature, and this chink in the
judicial armor, will the parties losing their cases against the Executive or the
Congress believe that the judicature has not yielded to their pressure?
Respondent asserts in argumentation that by executive order the President has
subjected his salary to the income tax law. In our opinion this shows obviously
that, without such voluntary act of the President, his salary would not be
taxable, because of constitutional protection against diminution. To argue from
this executive gesture that the judiciary could, and should act in like manner is

to assume that, in the matter of compensation and power and need of security,
the judiciary is on a par with the Executive. Such assumption certainly ignores
the prevailing state of affairs.
The judgment will be affirmed. So ordered.
Moran, C.J., Pablo, Padilla, Tuason, Montemayor, Reyes and Torres, JJ., concur.

Separate Opinions
OZAETA., J., dissenting:
It is indeed embarrassing that this case was initiated by a member of this Court
upon which devolves the duty to decide it finally. The question of whether the
salaries of the judges, the members of the Commission on Elections, the Auditor
General, and the President of the Philippines are immune from taxation, might
have been raised by any interested party other than a justice of the Supreme
Court with less embarrassment to the latter.
The question is simple and not difficult of solution. We shall state our opinion as
concisely as possible.
The first income tax law of the Philippines was Act No. 2833, which was
approved on March 7, 1919, to take effect on January 1, 1920. Section 1 (a) of
said Act provided:
There shall be levied, assessed, collected, and paid annually upon the entire net
income received in the preceding calendar year from all sources by every
individual, a citizen or resident of the Philippine Islands, a tax of two per centum
upon such income. . . . (Emphasis ours.)
Section 2 (a) of said Act provided:
Subject only to such exemptions and deductions as are hereinafter allowed, the
taxable net income of a person shall include gains, profits, and income derived
from salaries, wages or compensation for personal service of whatever kind and
is whatever form paid, or from professions, vocations, businesses, trade,
commerce, sales, or dealings in property, whether real or personal, growing out
of the ownership or use of or interest in real or personal property, also from

interest, rent, dividends, securities, or the transaction of any business carried on 537; Cass vs. Dillon, 2 Ohio St. 607; People vs. N. Y., 25 Wend. (N. Y. 22). (Barry
for gain or profit, or gains, profits, and income derived from any source
vs. Traux, 3 A. & E. Ann. Cas 191, 193.).
whatever.
Courts are bound to presume that the people adopting a constitution are
That income tax law has been amended several times, specially as to the rates of familiar with the previous and existing laws upon the subjects to which its
the tax, but the above-quoted provisions (except as to the rate) have been
provisions relate, and upon which they express their judgment and opinion in its
preserved intact in the subsequent Acts. The present income tax law is Title II of adoption (Baltimore vs. State, 15 Md. 376, 480; 74 Am. Dec. 572; State vs. Mace,
the National Internal Revenue Code, Commonwealth Act No. 466, sections 21,
5 Md. 337; Bandel vs. Isaac, 13 Md. 202; Manly vs. State, 7 Md. 135; Hamilton
28 and 29 of which incorporate the texts of the above-quoted provisions of the vs. St. Louis County Ct., 15 Mo. 5; People vs. Gies, 25 Mich. 83; Servis vs. Beatty,
original Act in exactly the same language. There can be no dispute whatsoever
32 Miss. 52; Pope vs. Phifer, 3 Heisk. (Tenn.) 686; People vs. Harding, 53 Mich.
that judges (who are individuals) and their salaries (which are income) are as
48, 51 Am. Rep. 95; Creve Coeur Lake Ice Co. vs. Tamm, 138 Mo. 385, 39 S. W.
clearly comprehended within the above-quoted provisions of the law as if they Rep. 791). (Idem.)
were specifically mentioned therein; and in fact all judges had been and were
paying income tax on their salaries when the Constitution of the Philippines was A constitutional provision must be presumed to have been framed and adopted
discussed and approved by the Constitutional Convention and when it was
in the light and understanding of prior and existing laws and with reference to
submitted to the people for confirmation in the plebiscite of May 14, 1935.
them. Constitutions, like statutes, are properly to be expounded in the light of
conditions existing at the time of their adoption, the general spirit of the times,
Now, the Constitution provides that the members of the Supreme Court and all and the prevailing sentiments among the people. Reference may be made to the
judges of inferior courts "shall receive such compensation as may be fixed by
historical facts relating to the original or political institutions of the community
law, which shall not be diminished during their continuance in office." (Section
or to prior well-known practices and usages. (11 Am. Ju., Constitutional Law,
9, Article VIII, emphasis ours.)a
676-678.)
The simple question is: In approving the provisions against the diminution of the
compensation of judges and other specified officers during their continuance in
office, did the framers of the Constitution intend to nullify the then existing
income tax law insofar as it imposed a tax on the salaries of said officers ? If they
did not, then the income tax law, which has been incorporated in the present
National Internal Revenue Code, remains in force in its entirety and said officers
cannot claim exemption therefrom on their salaries.

The salaries provided in the Constitution for the Chief Justice and each associate
Justice, respectively, of the Supreme Court were the same salaries ]which they
were receiving at the time the Constitution was framed and adopted and on
which they were paying income tax under the existing income tax law. It seems
clear to us that for them to receive the same salaries, subject to the same tax,
after the adoption of the Constitution as before does not involve any diminution
at all. The fact that the plaintiff was not a member of the Court when the
Constitution took effect, makes no difference. The salaries of justices and judges
Section 2 of Article XVI of the Constitution provides that all laws of the Philippine were subject to income tax when he was appointed in the early part of 1945. In
Islands shall remain operative, unless inconsistent with this Constitution, until
fact he must have declared and paid income tax on his salary for 19454 he
amended, altered, modified. or repealed by the Congress of the Philippines.
claimed exemption only beginning 1946. It seems likewise clear that when the
framers of the Constitution fixed those salaries, they must have taken into
In resolving the question at bar, we must take into consideration the following
consideration that the recipients were paying income tax thereon. There was no
well-settled rules:
necessity to provide expressly that said salaries shall be subject to income tax
because they knew that already so provided. On the other hand, if exemption
"A constitution shall be held to be prepared and adopted in reference to existing from any tax on said salaries had been intended, it would have been specifically
statutory laws, upon the provisions of which in detail it must depend to be set in to so provide, instead of merely saying that the compensation as fixed "shall not
practical operation" (People vs. Potter, 47 N. Y. 375; People vs. Draper, 15 N. Y. be diminished during their continuance in office."

In the light of the antecedents, the prohibition against diminution cannot be

interpreted to include or refer to general taxation but to a law by which said
salaries may be fixed. The sentence in question reads: "They shall receive such
compensation as may be fixed by law, which shall not be diminished during their
continuance in office." The next sentence reads: "Until the Congress shall
provide otherwise, the Chief Justice of the Supreme Court shall receive an
annual compensation of P16,000, and each associate Justice, P15,000." It is plain
that the Constitution authorizes the Congress to pass a law fixing another rate of
compensation, but that such rate must be higher than that which the justices
receive at he time of its enactment or, if lower, it must not affect those justice
already in office. In other words, Congress may approve a law increasing the
salaries of the justices at any time, but it cannot approve a law decreasing their
salaries unless such law is made effective only as to justices appointed after its
approval.
It would be a strained and unreasonable construction of the prohibition against
diminution to read into it an exemption from taxation. There is no justification
for the belief or assumption that the framers of the Constitution intended to
exempt the salaries of said officers from taxes. They knew that it was and is the
unavoidable duty of every citizen to bear his aliquot share of the cost of
maintaining the Government; that taxes are the very blood that sustains the life
of the Government. To make all citizens share the burden of taxation equitably,
the Constitution expressly provides that "the rule of taxation shall be uniform."
(Section 22 [1], Article VI.) We think it would be a contravention of this provision
to read into the prohibition against diminution of the salaries of the judges and
other specified officers an exemption from taxes on their salaries. How could
the rule of income taxation be uniform if it should not be applied to a group of
citizens in the same situation as other income earners ? It is to us inconceivable
that the framers ever intended to relieve certain officers of the Government
from sharing with their fellows citizens the material burden of the Government
to exempt their salaries from taxes. Moreover, the Constitution itself
specifies what properties are exempt from taxes, namely: "Cemeteries,
churches, and parsonages or convents appurtenant thereto, and all lands,
buildings, and improvements used exclusively for religious, charitable, or
educational purposes." (Sec. 22 [3], Article VI.) The omission of the salaries in
question from this enumeration is in itself an eloquent manifestation of
intention to continue the imposition of taxes thereon as provided in the existing
law. Inclusio est exclusio alterius.

We have thus far read and construed the pertinent portions of our own
Constitution and income tax law in the light of the antecedent circumstances
and of the operative factors which prevailed at the time our Constitution was
framed, independently of the construction now prevailing in the United States
of similar provisions of the federal Constitution in relation to the present federal
income tax law, under which the justices of the Supreme Court, and the federal
judges are now, and since the case of O'Malley vs. Woodrough was decided on
May 22, 1939, have been, paying income tax on their salaries. Were this a
majority opinion, we could end here with the consequent reversal of the
judgment appealed from. But ours is a voice in the wilderness, and we may
permit ourselves to utter it with more vehemence and emphasis so that future
players on this stage perchance may hear and heed it. Who knows? The Gospel
itself was a voice in the wilderness at the time it was uttered.
We have to comment on Anglo-American precedents since the majority decision
from which we dissent is based on some of them. Indeed, the majority say they
"hardly do nothing more than to borrow therefrom and to compare their
conclusions to local conditions." which we shall presently show did not obtain in
the United States at the time the federal and state Constitutions were adopted.
We shall further show that in any event what they now borrow is not usable
because it has long been withdrawn from circulation.
When the American Constitution was framed and adopted, there was no income
tax law in the United States. To this circumstance may be attributed the claim
made by some federal judges headed by Chief Justice Taney, when under the
Act of Congress of July 1, 1862, their salaries were subjected to an income tax,
that such tax was a diminution of their salaries and therefore prohibited by the
Constitution. Chief Justice Taney's claim and his protest against the tax were not
heeded, but no federal judge deemed it proper to sue the Collector of Internal
Revenue to recover the taxes they continued to pay under protest for several
years. In 1869, the Secretary of the Treasury referred the question to Atty.
General Hoar, and that officer rendered an opinion in substantial accord with
Chief Justice Taney's protest, and also advised that the tax on the President's
compensation was likewise invalid. No judicial pronouncement, however, was
made of such invalidity until June 1, 1920, when the case of Evans vs. Gore (253
U.S. 245, 64 L. ed. 887) was decided upon the constitutionality of section 213 of
the Act of February 24, 1919, which required the computation of incomes for
the purpose of taxation to embrace all gains, profits, income and the like,
"including in the case of the President of the United States, the judges of the
Supreme and inferior courts of the United States, [and others] . . . the

compensation received as such." The Supreme Court of the United States,

speaking through Mr. Justice Van Devanter, sustained the suit with the dissent
of Justice Holmes and Brandeis. The doctrine of Evans vs. Gore holding in effect
that an income tax on a judge's salary is a diminution thereof prohibited by the
Constitution, was reaffirmed in 1925 in Miles vs. Graham, 69 L. ed 1067.

We emphasize that the doctrine of Evans vs. Gore and Miles vs. Graham is no
longer operative, and that all United States judges, including those who took
office before June 6, 1932, are subject to and pay income tax on their salaries;
for after the submission of O'Malley vs. Woodrough for decision the Congress of
the United States, by section 3 of the Public Salary Act of 1939, amended section
22 (a) of the Revenue Act of June 6, 1932, so as to make it applicable to "judges
In 1939, however, the case of O'Malley vs. Woodrough (59 S. Ct. 838, 122 A. L.
of courts of the United States who took office on or before June 6, 1932." And
R. 1379) was brought up to the test the validity of section 22 of the Revenue Act the validity of that Act, in force for more than a decade, has not been
of June 6, 1932, which included in the "gross income," on the basis of which
challenged.
taxes were to be paid, the compensation of "judges of courts of the United
States taking office after June 6, 1932." And in that case the Supreme Court of
Our colleagues import and transplant here the dead limbs of Evans vs. Gore and
the United States, with only one dissent (that of Justice Butler), abandoned the Miles vs. Graham and attempt to revive and nurture them with painstaking
doctrine of Evans vs. Gore and Miles vs. Graham by holding:
analyses and diagnoses that they had not suffered a fatal blow from O'Malley vs.
Woodrough. We refuse to join this heroic attempt because we believe it is futile.
To subject them [the judges] to a general tax is merely to recognize that judges
are also citizens, and that their particular function in government does not
They disregard the actual damage and minimize it by trying to discover the
generate an immunity from sharing with their fellow citizens the material
process by which it was inflicted and he motivations that led to the infliction.
burden of the government whose Constitution and laws they are charged with
They say that the chief axe-wielder, Justice Frankfurter, was a Harvard graduate
administering.
and professor and that the Harvard Law Journal had criticized Evans vs. Gore;
that the dissenters in said case (Holmes and Brandeis) were Harvard men like
The decision also says:
Frankfurter; and that they believe this to be the "inarticulate consideration that
may have influenced the grounds on which the case [O'Malley vs. Woodrough]
To suggest that it [the law in question] makes inroads upon the independence of went off." This argument is not valid, in our humble belief. It was not only the
judges who took office after Congress had thus charged them with the common Harvard Law Journal that had criticized Evans vs. Gore. Justice Frankfurter and
duties of citizenship, by making them bear their aliquot share of the cost of
his colleagues said that the decision in that case "met with wide and steadily
maintaining the Government, is to trivialize the great historic experience on
growing disfavor from legal scholarship and professional opinion," and they
which the framers based the safeguard of Article 3, section 1.
cited the following: Clark, Furthermore Limitations Upon Federal Income
Taxation, 30 Yale L. J. 75; Corwin, Constitutional Law in 1919-1920, 15 Am. Pol.
Commenting on the above-quoted portions of the latest decision of the
Sci. Rev. 635, 641-644; Fellman, Diminution of Judicial Salaries, 24 Iowa L. Rev.
Supreme Court of the United States on the subject, Prof. William Bennett,
89; Lowndes, Taxing Income of Federal Judiciary, 19 Va. L. Rev. 153; Powell,
Munro, in his book, The Government of the United States, which is used as a
Constitutional Law in 1919-1920, 19 Mich. L. Rev. 117, 118; Powell, The
text in various universities, says: ". . .
Sixteenth Amendment and Income from State Securities, National Income Tax
Magazine (July, 1923), 5, 6; 20 Columbia L. Rev. 794; 43 Harvard L. Rev. 318; 20
All of which seems to be common sense, for surely the framers of the
Ill. L. Rev. 376; 45 Law Quarterly Rev. 291; 7 Va. L. Rev. 69; 3 University of
Constitution from ever cutting a judge's salary, did not intend to relieve all
Chicago L. Rev. 141. Justice Frankfurter and his colleagues also said that "Evans
federal judges from the general obligations of citizenship. As for the President,
vs. Gore itself was rejected by most of the courts before whom the matter came
he has never raised the issue; every occupant of the White House since 1913
after that decision." Is not the intention to throw Evans vs. Gore into the
has paid his income tax without protest. (Pages 371-372.)
graveyard of abandoned cases manifest from all this and from the holding that
judges are also citizens, liable to income tax on their salaries?

The majority say that "unless and until our legislature approves an amendment
to the income tax law expressly taxing 'the salaries of judges thereafter
appointed,' the O'Malley case is not relevant." We have shown that our income
tax law taxes the salaries of judges as clearly as if they are specifically mentioned
therein, and that said law took effect long before the adoption of the
Constitution and long before the plaintiff was appointed.

* Evans vs. Gore, 253 U. S. 245 and Gordy v. Dennis, 5 Atl. (2d) 69, hold identical
view.

We agree that the purpose of the constitutional provision against diminution of

the salaries of judges during their continuance in office is to safeguard the
independence of the Judicial Department. But we disagree that to subject the
salaries of judges to a general income tax law applicable to all income earners
would in any way affect their independence. Our own experience since the
income tax law went effect in 1920 is the best refutation of such assumption.

3 See Evans vs. Gore, supra.

The majority give an example by which the independence of judges may be

imperiled thru the imposition of a tax on their salaries. They say: Suppose there
is power to tax the salaries of judges and the judiciary incurs the displeasure of
the Legislature and the Executive. In retaliation the income tax law is amended
so as to levy a 30 per cent tax on all salaries of government officials on the level
of judges, and by means of another law the salaries of the executive and the
legislative branches are increased to compensate for the 30 per cent reduction
of their salaries. To this we reply that if such a vindictive measure is ever
resorted to (which we cannot imagine), we shall be the first ones to vote to
strike it down as a palpable violation of the Constitution. There is no parity
between such hypothetical law and the general income tax law invoked by the
defendant in this case. We believe that an income tax law applicable only
against the salaries of judges and not against those or all other income earners
may be successfully assailed as being in contravention not only of the provision
against diminution of the salaries of judges but also of the uniformity of the rule
of taxation as well as of the equal protection clause of the Constitution. So the
danger apprehended by the majority is not real but surely imaginary.
We vote for the reversal of the judgment appealed from the dismissal of
plaintiff's complaint.
Paras J., concurs.

Footnotes

1 Evans vs. Gore, 253 U. S. 254, 64 L. ed. 887.

2 157 U. S. 701, Evans vs. Gore, supra.

* Evans vs. Gore, supra.

(Note A) The defendant also relies on the dissenting opinion of Mr. Justice
Holmes in Evans vs. Gore, supra, forgetting that subsequently Justice Holmes did
not dissent in Miles vs. Graham, and apparently accepted Evans vs. Gore as
authority in writing his opinion in Gillespie vs. Oklahoma, 257 U. S. 501, 66 Law
ed. 338. This remark applies to Taylor vs. Gehner (1931), No. 45 S. W. (2d) 59,
which merely echoes Holmes dissent.
State vs. Nygaard, 159, Wisc. 396 and the decision of English courts invoked by
appellant, are refuted or distinguished in Gordy vs. Dennis, 5 Alt. (2d) 68, known
to him since he invokes the minority opinion therein.
4 Frankfurter, The Administrative Side of Chief Justice Hughes, Harvard Law
Review, November, 1949.
5 It was a coincidence that the dissenters (Holmes and Brandeis) were Harvard
men like Frankfurter. It is not unlikely that the Harvard professor and admirer of
Justice Holmes (whose biography he wrote in 1938) noted and unconsciously
absorbed the dissent.
6 Baker vs. C.I.R. 149 Fed. (2d) 342.
7 It requires a very clear case to justify changing the construction of a
constitutional provision which has been acquiesced in for so long a period as
fifty years. (States vs. Frear, 138 Wisc. 536, 120 N. W. 216. See also Hill vs. Tohill,
225 Ill. 384, 80 NE, 253.
8 On persuasive weight of contemporary construction of constitutional
provision, see generally Cooley, Constitutional Limitation 98th Ed.) Vol. I pp. 144
et seq.

a The Constitution also provides that the President shall "receive a

compensation to be ascertained by law which shall be neither increased nor
diminished during the period for which he shall have been elected" (section 9,
Article VII); that the Auditor General "shall receive an annual compensation to
be fixed by law which shall not be diminished during his continuance in office"
(section 1, Article XI); and that the salaries of the chairman and the members of
the Commission on Elections "shall be neither increased nor diminished during
their term of office" (section 1, Article X).

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-6355-56

August 31, 1953

PASTOR M. ENDENCIA and FERNANDO JUGO, plaintiffs-appellees,

vs.
SATURNINO DAVID, as Collector of Internal Revenue, defendant-appellant.
Office of the Solicitor General Juan R. Liwag and Solicitor Jose P. Alejandro for
appellant.
Manuel O. Chan for appellees.
MONTEMAYOR, J.:
This is a joint appeal from the decision of the Court of First Instance of Manila
declaring section 13 of Republic Act No. 590 unconstitutional, and ordering the
appellant Saturnino David as Collector of Internal Revenue to re-fund to Justice
Pastor M. Endencia the sum of P1,744.45, representing the income tax collected
on his salary as Associate Justice of the Court of Appeals in 1951, and to Justice
Fernando Jugo the amount of P2,345.46, representing the income tax collected
on his salary from January 1,1950 to October 19, 1950, as Presiding Justice of
the Court of Appeals, and from October 20, 1950 to December 31,1950, as
Associate Justice of the Supreme Court, without special pronouncement as to
costs.
Because of the similarity of the two cases, involving as they do the same
question of law, they were jointly submitted for determination in the lower
court. Judge Higinio B. Macadaeg presiding, in a rather exhaustive and well
considered decision found and held that under the doctrine laid down by this
Court in the case of Perfecto vs. Meer, 85 Phil., 552, the collection of income
taxes from the salaries of Justice Jugo and Justice Endencia was a diminution of
their compensation and therefore was in violation of the Constitution of the
Philippines, and so ordered the refund of said taxes.
We see no profit and necessity in again discussing and considering the
proposition and the arguments pro and cons involved in the case of Perfecto vs.

Meer, supra, which are raised, brought up and presented here. In that case, we
have held despite the ruling enunciated by the United States Federal Supreme
Court in the case of O 'Malley vs. Woodrought 307 U. S., 277, that taxing the
salary of a judicial officer in the Philippines is a diminution of such salary and so
violates the Constitution. We shall now confine our-selves to a discussion and
determination of the remaining question of whether or not Republic Act No.
590, particularly section 13, can justify and legalize the collection of income tax
on the salary of judicial officers.

which is hereby declared not to be dimunition of his compensation fixed by the

Constitution or by law.

So we have this situation. The Supreme Court in a decision interpreting the

Constitution, particularly section 9, Article VIII, has held that judicial officers are
exempt from payment of income tax on their salaries, because the collection
thereof was a diminution of such salaries, specifically prohibited by the
Constitution. Now comes the Legislature and in section 13, Republic Act No.
590, says that "no salary wherever received by any public officer of the Republic
According to the brief of the Solicitor General on behalf of appellant Collector of (naturally including a judicial officer) shall be considered as exempt from the
Internal Revenue, our decision in the case of Perfecto vs. Meer, supra, was not
income tax," and proceeds to declare that payment of said income tax is not a
received favorably by Congress, because immediately after its promulgation,
diminution of his compensation. Can the Legislature validly do this? May the
Congress enacted Republic Act No. 590. To bring home his point, the Solicitor
Legislature lawfully declare the collection of income tax on the salary of a public
General reproduced what he considers the pertinent discussion in the Lower
official, specially a judicial officer, not a decrease of his salary, after the Supreme
House of House Bill No. 1127 which became Republic Act No. 590.
Court has found and decided otherwise? To determine this question, we shall
have to go back to the fundamental principles regarding separation of powers.
For purposes of reference, we are reproducing section 9, Article VIII of our
Constitution:.
Under our system of constitutional government, the Legislative department is
assigned the power to make and enact laws. The Executive department is
SEC. 9. The members of the Supreme Court and all judges of inferior courts shall charged with the execution of carrying out of the provisions of said laws. But the
hold office during good behavior, until they reach the age of seventy years, or
interpretation and application of said laws belong exclusively to the Judicial
become incapacitated to discharge the duties of their office. They shall receive department. And this authority to interpret and apply the laws extends to the
such compensation as may be fixed by law, which shall not be diminished during Constitution. Before the courts can determine whether a law is constitutional or
their continuance in office. Until the Congress shall provide otherwise, the Chief not, it will have to interpret and ascertain the meaning not only of said law, but
Justice of the Supreme Court shall receive an annual compensation of sixteen
also of the pertinent portion of the Constitution in order to decide whether
thousand pesos, and each Associate Justice, fifteen thousand pesos.
there is a conflict between the two, because if there is, then the law will have to
give way and has to be declared invalid and unconstitutional.
As already stated construing and applying the above constitutional provision, we
held in the Perfecto case that judicial officers are exempt from the payment of
Defining and interpreting the law is a judicial function and the legislative branch
income tax on their salaries, because the collection thereof by the Government may not limit or restrict the power granted to the courts by the Constitution.
was a decrease or diminution of their salaries during their continuance in office, (Bandy vs. Mickelson et al., 44N. W., 2nd 341, 342.)
a thing which is expressly prohibited by the Constitution. Thereafter, according
to the Solicitor General, because Congress did not favorably receive the decision When it is clear that a statute transgresses the authority vested in the
in the Perfecto case, Congress promulgated Republic Act No. 590, if not to
legislature by the Constitution, it is the duty of the courts to declare the act
counteract the ruling in that decision, at least now to authorize and legalize the unconstitutional because they cannot shrink from it without violating their oaths
collection of income tax on the salaries of judicial officers. We quote section 13 of office. This duty of the courts to maintain the Constitution as the
of Republic Act No. 590:
fundamental law of the state is imperative and unceasing; and, as Chief Justice
Marshall said, whenever a statute is in violation of the fundamental law, the
SEC 13. No salary wherever received by any public officer of the Republic of the courts must so adjudge and thereby give effect to the Constitution. Any other
Philippines shall be considered as exempt from the income tax, payment of
course would lead to the destruction of the Constitution. Since the question as

to the constitutionality of a statute is a judicial matter, the courts will not

decline the exercise of jurisdiction upon the suggestion that action might be
taken by political agencies in disregard of the judgment of the judicial tribunals.
(11 Am. Jur., 714-715.)
Under the American system of constitutional government, among the most
important functions in trusted to the judiciary are the interpreting of
Constitutions and, as a closely connected power, the determination of whether
laws and acts of the legislature are or are not contrary to the provisions of the
Federal and State Constitutions. (11 Am. Jur., 905.).

system, a final court determination of a case based on a judicial interpretation of

the law of the Constitution may be undermined or even annulled by a
subsequent and different interpretation of the law or of the Constitution by the
Legislative department. That would be neither wise nor desirable, besides being
clearly violative of the fundamental, principles of our constitutional system of
government, particularly those governing the separation of powers.

So much for the constitutional aspect of the case. Considering the practical side
thereof, we believe that the collection of income tax on a salary is an actual and
evident diminution thereof. Under the old system where the in-come tax was
paid at the end of the year or sometime thereafter, the decrease may not be so
By legislative fiat as enunciated in section 13, Republic Act NO. 590, Congress
apparent and clear. All that the official who had previously received his full
says that taxing the salary of a judicial officer is not a decrease of compensation. salary was called upon to do, was to fulfill his obligation and to exercise his
This is a clear example of interpretation or ascertainment of the meaning of the privilege of paying his income tax on his salary. His salary fixed by law was
phrase "which shall not be diminished during their continuance in office," found received by him in the amount of said tax comes from his other sources of
in section 9, Article VIII of the Constitution, referring to the salaries of judicial
income, he may not fully realize the fact that his salary had been decreased in
officers. This act of interpreting the Constitution or any part thereof by the
the amount of said income tax. But under the present system of withholding the
Legislature is an invasion of the well-defined and established province and
income tax at the source, where the full amount of the income tax
jurisdiction of the Judiciary.
corresponding to his salary is computed in advance and divided into equal
portions corresponding to the number of pay-days during the year and actually
The rule is recognized elsewhere that the legislature cannot pass any
deducted from his salary corresponding to each payday, said official actually
declaratory act, or act declaratory of what the law was before its passage, so as does not receive his salary in full, because the income tax is deducted therefrom
to give it any binding weight with the courts. A legislative definition of a word as every payday, that is to say, twice a month. Let us take the case of Justice
used in a statute is not conclusive of its meaning as used elsewhere; otherwise, Endencia. As Associate Justice of the Court of Appeals, his salary is fixed at
the legislature would be usurping a judicial function in defining a term. (11 Am. p12,000 a year, that is to say, he should receive P1,000 a month or P500 every
Jur., 914, emphasis supplied)
payday, fifteenth and end of month. In the present case, the amount
collected by the Collector of Internal Revenue on said salary is P1,744.45 for one
The legislature cannot, upon passing a law which violates a constitutional
year. Divided by twelve (months) we shall have P145.37 a month. And further
provision, validate it so as to prevent an attack thereon in the courts, by a
dividing it by two paydays will bring it down to P72.685, which is the income tax
declaration that it shall be so construed as not to violate the constitutional
deducted form the collected on his salary each half month. So, if Justice
inhibition. (11 Am. Jur., 919, emphasis supplied)
Endencia's salary as a judicial officer were not exempt from payment of the
income tax, instead of receiving P500 every payday, he would be actually
We have already said that the Legislature under our form of government is
receiving P427.31 only, and instead of receiving P12,000 a year, he would be
assigned the task and the power to make and enact laws, but not to interpret
receiving but P10,255.55. Is it not therefor clear that every payday, his salary is
them. This is more true with regard to the interpretation of the basic law, the
actually decreased by P72.685 and every year is decreased by P1,744.45?
Constitution, which is not within the sphere of the Legislative department. If the
Legislature may declare what a law means, or what a specific portion of the
Reading the discussion in the lower House in connection with House Bill No.
Constitution means, especially after the courts have in actual case ascertain its
1127, which became Republic Act No. 590, it would seem that one of the main
meaning by interpretation and applied it in a decision, this would surely cause
reasons behind the enactment of the law was the feeling among certain
confusion and instability in judicial processes and court decisions. Under such a legislators that members of the Supreme Court should not enjoy any exemption

and that as citizens, out of patriotism and love for their country, they should pay
income tax on their salaries. It might be stated in this connection that the
exemption is not enjoyed by the members of the Supreme Court alone but also
by all judicial officers including Justices of the Court of Appeals and judges of
inferior courts. The exemption also extends to other constitutional officers, like
the President of the Republic, the Auditor General, the members of the
Commission on Elections, and possibly members of the Board of Tax Appeals,
commissioners of the Public Service Commission, and judges of the Court of
Industrial Relations. Compares to the number of all these officials, that of the
Supreme Court Justices is relatively insignificant. There are more than 990 other
judicial officers enjoying the exemption, including 15 Justices of the Court of
Appeals, about 107 Judges of First Instance, 38 Municipal Judges and about 830
Justices of the Peace. The reason behind the exemption in the Constitution, as
interpreted by the United States Federal Supreme Court and this Court, is to
preserve the independence of the Judiciary, not only of this High Tribunal but of
the other courts, whose present membership number more than 990 judicial
officials.
The exemption was not primarily intended to benefit judicial officers, but was
grounded on public policy. As said by Justice Van Devanter of the United States
Supreme Court in the case of Evans vs. Gore (253 U. S., 245):
The primary purpose of the prohibition against diminution was not to benefit
the judges, but, like the clause in respect of tenure, to attract good and
competent men to the bench and to promote that independence of action and
judgment which is essential to the maintenance of the guaranties, limitations
and pervading principles of the Constitution and to the administration of justice
without respect to person and with equal concern for the poor and the rich.
Such being its purpose, it is to be construed, not as a private grant, but as a
limitation imposed in the public interest; in other words, not restrictively, but in
accord with its spirit and the principle on which it proceeds.

considerations that prompted the establishment of the constitutional

exemption. In the same case of Evans vs. Gore, supra, the Federal Supreme
Court declared "that they (fathers of the Constitution) regarded the
independence of the judges as far as greater importance than any revenue that
could come from taxing their salaries.
When a judicial officer assumed office, he does not exactly ask for exemption
from payment of income tax on his salary, as a privilege . It is already attached
to his office, provided and secured by the fundamental law, not primarily for his
benefit, but based on public interest, to secure and preserve his independence
of judicial thought and action. When we come to the members of the Supreme
Court, this excemption to them is relatively of short duration. Because of the
limited membership in this High Tribunal, eleven, and due to the high standards
of experience, practice and training required, one generally enters its portals
and comes to join its membership quite late in life, on the aver-age, around his
sixtieth year, and being required to retire at seventy, assuming that he does not
die or become incapacitated earlier, naturally he is not in a position to receive
the benefit of exemption for long. It is rather to the justices of the peace that
the exemption can give more benefit. They are relatively more numerous, and
because of the meager salary they receive, they can less afford to pay the
income tax on it and its diminution by the amount of the income tax if paid
would be real, substantial and onerous.

Considering exemption in the abstract, there is nothing unusual or abhorrent in

it, as long as it is based on public policy or public interest. While all other citizens
are subject to arrest when charged with the commission of a crime, members of
the Senate and House of Representatives except in cases of treason, felony and
breach of the peace are exempt from arrest, during their attendance in the
session of the Legislature; and while all other citizens are generally liable for any
speech, remark or statement, oral or written, tending to cause the dishonor,
discredit or contempt of a natural or juridical person or to blacken the memory
of one who is dead, Senators and Congressmen in making such statements
Having in mind the limited number of judicial officers in the Philippines enjoying during their sessions are extended immunity and exemption.
this exemption, especially when the great bulk thereof are justices of the peace,
many of them receiving as low as P200 a month, and considering further the
And as to tax exemption, there are not a few citizens who enjoy this exemption.
other exemptions allowed by the income tax law, such as P3,000 for a married
Persons, natural and juridical, are exempt from taxes on their lands, buildings
person and P600 for each dependent, the amount of national revenue to be
and improvements thereon when used exclusively for educational purposes,
derived from income tax on the salaries of judicial officers, were if not for the
even if they derive income therefrom. (Art. VI, Sec. 22 [3].) Holders of
constitutional exemption, could not be large or substantial. But even if it were
government bonds are exempted from the payment of taxes on the income or
otherwise, it should not affect, much less outweigh the purpose and the
interest they receive therefrom (sec. 29 (b) [4], National Internal Revenue Code

as amended by Republic Act No. 566). Payments or income received by any

person residing in the Philippines under the laws of the United States
administered by the United States Veterans Administration are exempt from
taxation. (Republic Act No. 360). Funds received by officers and enlisted men of
the Philippine Army who served in the Armed Forces of the United States,
allowances earned by virtue of such services corresponding to the taxable years
1942 to 1945, inclusive, are exempted from income tax. (Republic Act No. 210).
The payment of wages and allowances of officers and enlisted men of the Army
Forces of the Philippines sent to Korea are also exempted from taxation.
(Republic Act No. 35). In other words, for reasons of public policy and public
interest, a citizen may justifiably by constitutional provision or statute be
exempted from his ordinary obligation of paying taxes on his income. Under the
same public policy and perhaps for the same it not higher considerations, the
framers of the Constitution deemed it wise and necessary to exempt judicial
officers from paying taxes on their salaries so as not to decrease their
compensation, thereby insuring the independence of the Judiciary.
In conclusion we reiterate the doctrine laid down in the case of Perfecto vs.
Meer, supra, to the effect that the collection of income tax on the salary of a
judicial officer is a diminution thereof and so violates the Constitution. We
further hold that the interpretation and application of the Constitution and of
statutes is within the exclusive province and jurisdiction of the Judicial
department, and that in enacting a law, the Legislature may not legally provide
therein that it be interpreted in such a way that it may not violate a
Constitutional prohibition, thereby tying the hands of the courts in their task of
later interpreting said statute, specially when the interpretation sought and
provided in said statute runs counter to a previous interpretation already given
in a case by the highest court of the land.
In the views of the foregoing considerations, the decision appealed from is
hereby affirmed, with no pronouncement as to costs.
Pablo, Bengzon, Padilla, Tuason, Reyes, and Labrador, JJ., concur.

Separate Opinions
BAUTISTA ANGELO, J., concurring:

Without expressing any opinion on the doctrine laid down by this Court in the
case of Perfecto vs. Meer, G. R. No. L-2314, in view of the part I had in that case
as former Solicitor General, I wish however to state that I concur in the opinion
of the majority to the effect that section 13, Republic Act No. 590, in so far as it
provides that taxing of the salary of a judicial officer shall be considered "not to
be a diminution of his compensation fixed by the Constitution or by law",
constitutes an invasion of the province and jurisdiction of the judiciary. In this
sense, I am of the opinion that said section is null and void, it being a
transgression of the fundamental principle underlying the separation of powers.

PARAS, C.J., concurring and dissenting:

I dissent for the same reasons stated in the dissenting opinion of Mr. Justice
Ozaeta in Perfecto vs. Meer, 85 Phil., 552, in which I concurred. But I disagree
with the majority in ruling that no legislation may provide that it be held valid
although against a provision of the Constitution.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 158253

March 2, 2007

REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF PUBLIC

WORKS AND HIGHWAYS, COMMISSION ON AUDIT and THE NATIONAL
TREASURER, Petitioner,
vs.
CARLITO LACAP, doing business under the name and style CARWIN
CONSTRUCTION AND CONSTRUCTION SUPPLY, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:

On October 29, 1992, personnel of the Office of the District Engineer of San
Fernando, Pampanga conducted a final inspection of the project and found it
100% completed in accordance with the approved plans and specifications.
Accordingly, the Office of the District Engineer issued Certificates of Final
Inspection and Final Acceptance.7
Thereafter, respondent sought to collect payment for the completed project.8
The DPWH prepared the Disbursement Voucher in favor of petitioner.9
However, the DPWH withheld payment from respondent after the District
Auditor of the Commission on Audit (COA) disapproved the final release of funds
on the ground that the contractors license of respondent had expired at the
time of the execution of the contract. The District Engineer sought the opinion
of the DPWH Legal Department on whether the contracts of Carwin
Construction for various Mount Pinatubo rehabilitation projects were valid and
effective although its contractors license had already expired when the projects
were contracted.10

In a Letter-Reply dated September 1, 1993, Cesar D. Mejia, Director III of the

DPWH Legal Department opined that since Republic Act No. 4566 (R.A. No.
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
4566), otherwise known as the Contractors License Law, does not provide that
Revised Rules of Court assailing the Decision1 dated April 28, 2003 of the Court a contract entered into after the license has expired is void and there is no law
of Appeals (CA) in CA-G.R. CV No. 56345 which affirmed with modification the
which expressly prohibits or declares void such contract, the contract is
Decision2 of the Regional Trial Court, Branch 41, San Fernando, Pampanga (RTC) enforceable and payment may be paid, without prejudice to any appropriate
in Civil Case No. 10538, granting the complaint for Specific Performance and
administrative liability action that may be imposed on the contractor and the
Damages filed by Carlito Lacap (respondent) against the Republic of the
government officials or employees concerned.11
Philippines (petitioner).
In a Letter dated July 4, 1994, the District Engineer requested clarification from
The factual background of the case is as follows:
the DPWH Legal Department on whether Carwin Construction should be paid
for works accomplished despite an expired contractors license at the time the
The District Engineer of Pampanga issued and duly published an "Invitation To
contracts were executed.12
Bid" dated January 27, 1992. Respondent, doing business under the name and
style Carwin Construction and Construction Supply (Carwin Construction), was
In a First Indorsement dated July 20, 1994, Cesar D. Mejia, Director III of the
pre-qualified together with two other contractors. Since respondent submitted Legal Department, recommended that payment should be made to Carwin
the lowest bid, he was awarded the contract for the concreting of Sitio 5 Bahay Construction, reiterating his earlier legal opinion.13 Despite such
Pare.3 On November 4, 1992, a Contract Agreement was executed by
recommendation for payment, no payment was made to respondent.
respondent and petitioner.4 On September 25, 1992, District Engineer Rafael S.
Ponio issued a Notice to Proceed with the concreting of Sitio 5 Bahay Pare.5
Thus, on July 3, 1995, respondent filed the complaint for Specific Performance
Accordingly, respondent undertook the works, made advances for the purchase and Damages against petitioner before the RTC.14
of the materials and payment for labor costs.6

On September 14, 1995, petitioner, through the Office of the Solicitor General
(OSG), filed a Motion to Dismiss the complaint on the grounds that the
complaint states no cause of action and that the RTC had no jurisdiction over
the nature of the action since respondent did not appeal to the COA the
decision of the District Auditor to disapprove the claim.15

administrative remedies does not apply; that by its actions the government is
estopped from questioning the validity and binding effect of the Contract
Agreement with the respondent; that denial of payment to respondent on
purely technical grounds after successful completion of the project is not
countenanced either by justice or equity.

Following the submission of respondents Opposition to Motion to Dismiss,16

the RTC issued an Order dated March 11, 1996 denying the Motion to
Dismiss.17 The OSG filed a Motion for Reconsideration18 but it was likewise
denied by the RTC in its Order dated May 23, 1996.19

The CA rendered herein the assailed Decision dated April 28, 2003, the
dispositive portion of which reads:

On August 5, 1996, the OSG filed its Answer invoking the defenses of nonexhaustion of administrative remedies and the doctrine of non-suability of the
State.20
Following trial, the RTC rendered on February 19, 1997 its Decision, the
dispositive portion of which reads as follows:
WHEREFORE, in view of all the foregoing consideration, judgment is hereby
rendered in favor of the plaintiff and against the defendant, ordering the latter,
thru its District Engineer at Sindalan, San Fernando, Pampanga, to pay the
following:
a) P457,000.00 representing the contract for the concreting project of Sitio 5
road, Bahay Pare, Candaba, Pampanga plus interest at 12% from demand until
fully paid; and
b) The costs of suit.
SO ORDERED.21
The RTC held that petitioner must be required to pay the contract price since it
has accepted the completed project and enjoyed the benefits thereof; to hold
otherwise would be to overrun the long standing and consistent
pronouncement against enriching oneself at the expense of another.22

WHEREFORE, the decision of the lower court is hereby AFFIRMED with

modification in that the interest shall be six percent (6%) per annum computed
from June 21, 1995.
SO ORDERED.24
Hence, the present petition on the following ground:
THE COURT OF APPEALS ERRED IN NOT FINDING THAT RESPONDENT HAS NO
CAUSE OF ACTION AGAINST PETITIONER, CONSIDERING THAT:
(a) RESPONDENT FAILED TO EXHAUST ADMINISTRATIVE REMEDIES; AND
(b) IT IS THE COMMISSION ON AUDIT WHICH HAS THE PRIMARY JURISDICTION
TO RESOLVE RESPONDENTS MONEY CLAIM AGAINST THE GOVERNMENT.25
Petitioner contends that respondents recourse to judicial action was premature
since the proper remedy was to appeal the District Auditors disapproval of
payment to the COA, pursuant to Section 48, Presidential Decree No. 1445 (P.D.
No. 1445), otherwise known as the Government Auditing Code of the
Philippines; that the COA has primary jurisdiction to resolve respondents money
claim against the government under Section 2(1),26 Article IX of the 1987
Constitution and Section 2627 of P.D. No. 1445; that non-observance of the
doctrine of exhaustion of administrative remedies and the principle of primary
jurisdiction results in a lack of cause of action.

Respondent, on the other hand, in his Memorandum28 limited his discussion to

Dissatisfied, petitioner filed an appeal with the CA.23 On April 28, 2003, the CA Civil Code provisions relating to human relations. He submits that equity
rendered its Decision sustaining the Decision of the RTC. It held that since the
demands that he be paid for the work performed; otherwise, the mandate of
case involves the application of the principle of estoppel against the government the Civil Code provisions relating to human relations would be rendered
which is a purely legal question, then the principle of exhaustion of

nugatory if the State itself is allowed to ignore and circumvent the standard of
behavior it sets for its inhabitants.

license is proper, respondent remained unpaid for the completed work despite
repeated demands. Clearly, there was unreasonable delay and official inaction
to the great prejudice of respondent.

The present petition is bereft of merit.

The general rule is that before a party may seek the intervention of the court, he
should first avail of all the means afforded him by administrative processes.29
The issues which administrative agencies are authorized to decide should not be
summarily taken from them and submitted to a court without first giving such
administrative agency the opportunity to dispose of the same after due
deliberation.30
Corollary to the doctrine of exhaustion of administrative remedies is the
doctrine of primary jurisdiction; that is, courts cannot or will not determine a
controversy involving a question which is within the jurisdiction of the
administrative tribunal prior to the resolution of that question by the
administrative tribunal, where the question demands the exercise of sound
administrative discretion requiring the special knowledge, experience and
services of the administrative tribunal to determine technical and intricate
matters of fact.31

Furthermore, whether a contractor with an expired license at the time of the

execution of its contract is entitled to be paid for completed projects, clearly is a
pure question of law. It does not involve an examination of the probative value
of the evidence presented by the parties. There is a question of law when the
doubt or difference arises as to what the law is on a certain state of facts, and
not as to the truth or the falsehood of alleged facts.35 Said question at best
could be resolved only tentatively by the administrative authorities. The final
decision on the matter rests not with them but with the courts of justice.
Exhaustion of administrative remedies does not apply, because nothing of an
administrative nature is to be or can be done.36 The issue does not require
technical knowledge and experience but one that would involve the
interpretation and application of law.

Thus, while it is undisputed that the District Auditor of the COA disapproved
respondents claim against the Government, and, under Section 4837 of P.D. No.
1445, the administrative remedy available to respondent is an appeal of the
denial of his claim by the District Auditor to the COA itself, the Court holds that,
Nonetheless, the doctrine of exhaustion of administrative remedies and the
in view of exceptions (c) and (e) narrated above, the complaint for specific
corollary doctrine of primary jurisdiction, which are based on sound public policy performance and damages was not prematurely filed and within the jurisdiction
and practical considerations, are not inflexible rules. There are many accepted
of the RTC to resolve, despite the failure to exhaust administrative remedies. As
exceptions, such as: (a) where there is estoppel on the part of the party invoking the Court aptly stated in Rocamora v. RTC-Cebu (Branch VIII):38
the doctrine; (b) where the challenged administrative act is patently illegal,
amounting to lack of jurisdiction; (c) where there is unreasonable delay or
The plaintiffs were not supposed to hold their breath and wait until the
official inaction that will irretrievably prejudice the complainant; (d) where the
Commission on Audit and the Ministry of Public Highways had acted on the
amount involved is relatively small so as to make the rule impractical and
claims for compensation for the lands appropriated by the government. The
oppressive; (e) where the question involved is purely legal and will ultimately
road had been completed; the Pope had come and gone; but the plaintiffs had
have to be decided by the courts of justice;32 (f) where judicial intervention is
yet to be paid for the properties taken from them. Given this official
urgent; (g) when its application may cause great and irreparable damage; (h)
indifference, which apparently would continue indefinitely, the private
where the controverted acts violate due process; (i) when the issue of nonrespondents had to act to assert and protect their interests.39
exhaustion of administrative remedies has been rendered moot;33 (j) when
there is no other plain, speedy and adequate remedy; (k) when strong public
On the question of whether a contractor with an expired license is entitled to be
interest is involved; and, (l) in quo warranto proceedings.34 Exceptions (c) and
paid for completed projects, Section 35 of R.A. No. 4566 explicitly provides:
(e) are applicable to the present case.
SEC. 35. Penalties. Any contractor who, for a price, commission, fee or wage,
Notwithstanding the legal opinions of the DPWH Legal Department rendered in submits or attempts to submit a bid to construct, or contracts to or undertakes
1993 and 1994 that payment to a contractor with an expired contractors
to construct, or assumes charge in a supervisory capacity of a construction work

within the purview of this Act, without first securing a license to engage in the
business of contracting in this country; or who shall present or file the license
certificate of another, give false evidence of any kind to the Board, or any
member thereof in obtaining a certificate or license, impersonate another, or
use an expired or revoked certificate or license, shall be deemed guilty of
misdemeanor, and shall, upon conviction, be sentenced to pay a fine of not less
than five hundred pesos but not more than five thousand pesos. (Emphasis
supplied)
The "plain meaning rule" or verba legis in statutory construction is that if the
statute is clear, plain and free from ambiguity, it must be given its literal
meaning and applied without interpretation.40 This rule derived from the
maxim Index animi sermo est (speech is the index of intention) rests on the valid
presumption that the words employed by the legislature in a statute correctly
express its intention or will and preclude the court from construing it differently.
The legislature is presumed to know the meaning of the words, to have used
words advisedly, and to have expressed its intent by use of such words as are
found in the statute.41 Verba legis non est recedendum, or from the words of a
statute there should be no departure.42
The wordings of R.A. No. 4566 are clear. It does not declare, expressly or
impliedly, as void contracts entered into by a contractor whose license had
already expired. Nonetheless, such contractor is liable for payment of the fine
prescribed therein. Thus, respondent should be paid for the projects he
completed. Such payment, however, is without prejudice to the payment of the
fine prescribed under the law.
Besides, Article 22 of the Civil Code which embodies the maxim Nemo ex
alterius incommode debet lecupletari (no man ought to be made rich out of
anothers injury) states:
Art. 22. Every person who through an act of performance by another, or any
other means, acquires or comes into possession of something at the expense of
the latter without just or legal ground, shall return the same to him.
This article is part of the chapter of the Civil Code on Human Relations, the
provisions of which were formulated as "basic principles to be observed for the
rightful relationship between human beings and for the stability of the social
order, x x x designed to indicate certain norms that spring from the fountain of
good conscience, x x x guides human conduct [that] should run as golden

threads through society to the end that law may approach its supreme ideal
which is the sway and dominance of justice."43 The rules thereon apply equally
well to the Government.44 Since respondent had rendered services to the full
satisfaction and acceptance by petitioner, then the former should be
compensated for them. To allow petitioner to acquire the finished project at no
cost would undoubtedly constitute unjust enrichment for the petitioner to the
prejudice of respondent. Such unjust enrichment is not allowed by law.
WHEREFORE, the present petition is DENIED for lack of merit. The assailed
Decision of the Court of Appeals dated April 28, 2003 in CA-G.R. CV No. 56345 is
AFFIRMED. No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
(On Leave)
ROMEO J. CALLEJO, SR.
Associate Justice
MINITA V. CHICO-NAZARIO
Asscociate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

13 Id.
CERTIFICATION
14 Id. at 1.
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons attestation, it is hereby certified that the conclusions in the above 15 Id. at 37.
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
16 Id. at 48.
REYNATO S. PUNO
Chief Justice

17 Id. at 50.
18 Id. at 58.

Footnotes

19 Id. at 67.

1 Penned by Associate Justice Rosmari D. Carandang and concurred in by

20 Id. at 78.
Associate Justices Conrado M. Vasquez, Jr. and Mercedes Gozo-Dadole, CA rollo,
p. 167.
21 Id. at 125.
2 Original Records, p. 120.

22 Id. at 124-125.

3 Id. at 7.

23 CA rollo, p. 17.

4 Id. at 8.

24 Id. at 273.

5 Id. at 12.

25 Id. at 33.

6 CA rollo, p. 268.

26 SEC. 2 (1) The Commission on Audit shall have the power, authority, and duty
to examine, audit and settle all accounts pertaining to the revenue and receipts
of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled corporations with
original charters, and on a post-audit basis: (a) constitutional bodies,
commission and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the Government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including temporary or

7 Original Records, p. 12-A.

8 Id. at 13.
9 Id. at 14.
10 Id. at 15.
11 Ibid.
12 Id. at 16.

special pre-audit, as are necessary and appropriate to correct the deficiencies. It

shall keep the general accounts of the Government and for such period as may 36 Espina v. Court of Appeals, 356 Phil. 15, 21 (1998); Prudential Bank v.
be provided by law, preserve the vouchers and other supporting papers
Gapultos, G.R. Nos. 41835 & 49293, January 19, 1990, 181 SCRA 159, 168.
pertaining thereto.
37 Section 48. Appeal from the decision of auditors. Any person aggrieved by
27 Section 26. General jurisdiction. The authority and powers of the
the decision of an auditor of any government agency in the settlement of
Commission shall extend to and comprehend all matters relating to auditing
account or claim may within six months from receipt of a copy of the decision
procedures, systems and controls, the keeping of the general accounts of the
appeal in writing to the Commission.
Government, the preservation of vouchers pertaining thereto for a period of ten
years, the examination and inspection of the books, records, and papers relating 38 Supra note 32.
to those accounts; and the audit and settlement of the accounts of all persons
respecting funds or property received or held by them in an accountable
39 Id. at 624-625.
capacity, as well as the examination, audit, and settlement of all debts and
claims of any sort due from or owing the Government or any of its subdivisions, 40 Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R.
agencies and instrumentalities. The said jurisdiction extends to all government- No. 159647, April 15, 2005, 456 SCRA 414, 443; National Federation of Labor v.
owned or controlled corporations, including their subsidiaries, and other selfNational Labor Relations Commission, 383 Phil. 910, 918 (2000); Ruben E.
governing boards, commissions, or agencies of the Government, and as herein
Agpalo, Statutory Construction, 2003 Ed., p. 124.
prescribed, including non-governmental entities subsidized by the government,
those funded by donation through the government, those required to pay levies 41 Southern Cross Cement Corporation v. Philippine Cement Manufacturers
of government share, and those which the government has put up a counterpart Corporation, G.R. No. 158540, July 8, 2004, 434 SCRA 65, 93; Republic v. Court
fund or those partly funded by the government.
of Appeals, 359 Phil. 530, 602 (2000).
28 Rollo, p. 152.
29 ACWS, Ltd. v. Dumlao, 440 Phil. 787, 801-802 (2002); Zabat v. Court of
Appeals, 393 Phil. 195, 206 (2000).
30 ACWS case, id. at 802.
31 Paloma v. Mora, G.R. No. 157783, September 23, 2005, 470 SCRA 711, 725;
Fabia v. Court of Appeals, 437 Phil. 389, 403 (2002).
32 Rocamora v. Regional Trial Court-Cebu (Branch VIII), No. L-65037, November
23, 1988, 167 SCRA 615, 623.
33 Carale v. Abarintos, 336 Phil. 126, 137 (1997).
34 Castro v. Sec. Gloria, 415 Phil. 645, 651-652 (2001).
35 Castro v. Sec. Gloria case, id. at 652.

42 Enjay, Inc. v. National Labor Relations Commission, 315 Phil. 648, 656 (1995);
Globe-Mackay Cable and Radio Corporation v. National Labor Relations
Commission, G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711.
43 Advanced Foundation Construction Systems Corporation v. New World
Properties and Ventures, Inc., G.R. Nos. 143154 & 143177, June 21, 2006, 491
SCRA 557, 578; Security Bank & Trust Co. v. Court of Appeals, 319 Phil. 312, 317
(1995), citing Report of the Code Commission, p. 39, cited in Padilla, Ambrosio,
Civil Code Annotated, Vol. 1, 1975.
44 Palma Development Corp. v. Municipality of Malangas, Zamboanga Del Sur,
459 Phil. 1042, 1050 (2003); Republic v. Court of Appeals, No. L-31303-04, May
31, 1978, 83 SCRA 453, 480.

FIRST DIVISION

DAVAO ORIENTAL ELECTRIC COOPERATIVE, INC.,

Petitioner,

- versus -

THE PROVINCE OF DAVAO ORIENTAL,

Respondent.
G.R. No. 170901
Present:
PUNO, C.J., Chairperson,
CARPIO,
CORONA,
AZCUNA, and
LEONARDO-DE CASTRO, JJ.
Promulgated:
January 20, 2009
x----------------------------------------------------------x
DECISION
PUNO, C.J.:
On appeal is the Court of Appeals (CAs) November 15, 2005 Decision[1] in CAG.R. CV No. 67188 setting aside the March 15, 2000 Decision[2] of the Regional
Trial Court (RTC) of Mati, Davao Oriental in Civil Case No. 1550 that dismissed
the complaint for collection of delinquent real property taxes filed by the
Province of Davao Oriental against the Davao Oriental Electric Cooperative, Inc.
The facts are as follows:

Petitioner Davao Oriental Electric Cooperative, Inc. was organized under

Presidential Decree (PD) No. 269 which granted a number of tax and duty
exemption privileges to electric cooperatives.[3] In 1984, PD No. 1955[4] was
enacted by then President Ferdinand E. Marcos. It withdrew all exemptions from
or any preferential treatment in the payment of duties, taxes, fees, imposts, and
other charges granted to private business enterprises and/or persons engaged
in any economic activity.
Due to the failure of petitioner to declare the value of its properties, the Office
of the Provincial Assessor assessed its properties.[5] On October 8, 1985, the
Provincial Assessor sent the Notice of Assessment to petitioner which duly
received it.
During the same year of 1985, the Fiscal Incentive Review Board (FIRB) issued
FIRB Resolution No. 13-85, the Ministry of Finance issued Local Tax Regulation
No. 3-85, and the Office of the Local Government Finance, Region XI, Davao City
issued Regional Office Memorandum Circular No. 42-85, all of which reiterated
the withdrawal of tax exemptions previously granted to business entities
including electric cooperatives.
On January 8, 1986, then Pres. Marcos issued PD No. 2008,[6] requiring the
Minister of Finance to immediately restore the tax exemption of all electric
cooperatives. However, in December 1986, then Pres. Corazon C. Aquino issued
Executive Order (EO) No. 93 which withdrew all tax and duty exemptions
granted to private entities effective March 10, 1987. But Memorandum Order
No. 65, dated January 23, 1987, suspended the implementation of the said EO
until June 30, 1987 for cooperatives. Effective July 1, 1987, FIRB No. 24-87
restored the tax and duty exemption
privileges of electric cooperatives under PD No. 269. FIRB Resolution No. 24-87
reads:
BE IT RESOLVED, as it is hereby resolved, That the tax and duty exemption
privileges of electric cooperatives granted under the terms and conditions of
Presidential Decree No. 269 (creating the National Electrification Administration
as a corporation, prescribing its powers and activities, appropriating the
necessary funds therefore and declaring a national policy objective for the total
electrification of the Philippines on an area coverage basis; the organization,
promotion and development of electric cooperatives to attain the said objective,
prescribing terms and conditions for their operations, the repeal of Republic Act
No. 6038, and for other purposes), as amended, are restored effective July 1,
1987: Provided, however, That income from their electric service operations and
other sources including the interest income from bank deposits and yield or any
other monetary benefit from bank deposits and yield or any other similar
arrangements shall remain taxable: Provided, further, That the electric

cooperatives shall furnish the FIRB on an annual basis or as often as the FIRB
may require them to do so, statistical and financial statements of their
operations and other information as may be required, for purposes of effective
and efficient tax and duty exemption availment.

A cursory reading of the aforecited resolution fails to indicate any semblance of

retroactivity of the restoration of tax exemptions, in contrast to the ruling of the
court a quo and to the contention of the Appellee that such restoration is
retroactive from the date of withdrawal of exemption. The FIRB Resolution No.
24-87 is very specific and clear that the tax and duty exemption privileges of
(SGD.) JAIME V. ONGPIN
electric cooperatives are restored effective 1 July 1987. Besides, it is settled that
Secretary of Finance
laws have no retroactive effect. It is settled that a sound statutory construction
Chairman, FIRB
is that a statute operates prospectively, unless the legislative intent to the
contrary is made manifest either by the express terms of the statute or by
In May 1990, respondent filed a complaint for collection of delinquent real
necessary implication. . . .
property taxes against petitioner for the years 1984 until 1989, amounting to
The dispositive portion of the decision of the CA reads as follows:
one million eight hundred twenty-five thousand nine hundred twenty-eight
WHEREFORE, premises considered, herein Appeal is GRANTED and the assailed
pesos and twelve centavos (P1,825,928.12).
Decision of the court a quo is hereby SET ASIDE. Plaintiff-Appellee Davao
Petitioner contends that it was exempt from the payment of real estate taxes
Oriental Electric Cooperative is hereby ordered to PAY Plaintiff-Appellant
from 1984 to 1989 because the restoration of tax exemptions under FIRB
Province of Davao Oriental delinquent real property taxes from 1 January 1985
Resolution No. 24-87 retroacts to the date of withdrawal of said exemptions.
up to 31 December 1989 plus the corresponding penalties and surcharges
Further, petitioner questions the classification made by respondent of some of imposed by law.
its properties as real properties when it believes them to be personal properties, SO ORDERED.[9]
hence, not subject to realty tax.
On March 15, 2000, the RTC rendered its decision in favor of petitioner. It ruled,
thus:
Hence, this appeal.[10]
Inasmuch as the Fiscal Incentive Review Board (FIRB) Resolution No. 24-87
Petitioner raises the following issues:
issued on June 14, 1987, RESTORED the duty and tax exemptions enjoyed by
(1) WHETHER OR NOT THE HONORABLE COURT OF APPEALS HAD GRAVELY
Electric Cooperatives established pursuant to PD 269 (Sec. 39) which were
ERRED IN RULING THAT THE RESTORATION OF THE TAX EXEMPTION UNDER FIRB
previously withdrawn, and that the said Resolution No. 24-87 was issued in
RESOLUTION NO. 24-87 WAS NOT RETROACTIVE TO THE DATE OF EFFECTIVITY
compliance with the mandate of Executive Order No. 93 which has been
OF PD 1955.
declared as a valid delegation of legislative power pursuant to the Maceda[7]
(2) WHETHER OR NOT THE HONORABLE COURT OF APPEALS WAS CORRECT IN
case, there is no question that the herein defendant as an electric cooperative
HOLDING THAT NOTWITHSTANDING THE RESTORATION OF SUCH TAX
established under PD 269 is exempt from the payment of its realty taxes during EXEMPTIONS UNDER FIRB RESOLUTION NO. 24-87, THE PETITIONER SHOULD
the period covered by the herein complaint 1985 to December 31, 1987.
STILL BE LIABLE FOR UNPAID TAXES FOR THE SUPPOSED FAILURE TO SUBMIT TO
xxx
THE FIRB FINANCIAL STATEMENTS OF ITS OPERATIONS.
The dispositive portion of the decision reads as follows:
(3) WITHOUT CONCEDING ON THE FOREGOING, WHETHER OR NOT THE
WHEREFORE, in view of the foregoing, judgment is rendered dismissing the
PETITIONER COULD BE MADE TO PAY TAXES BASED ON A WIDE-SWEEPING AND
complaint.
ERRONEOUS ASSESSMENT OF ITS REAL PROPERTIES.[11]
Counterclaim is likewise dismissed.
First, we resolve the issue of retroactivity of FIRB Resolution No. 24-87. We
No pronouncement as to costs.
affirm the ruling of the CA. Indeed, even a cursory reading of the resolution,
SO ORDERED.[8]
quoted above, bares no indicia of retroactivity of its application. FIRB Resolution
Respondent appealed to the CA which set aside the ruling of the RTC. It held
No. 24-87 is crystal clear in stating that the tax and duty exemption privileges of
that:
electric cooperatives granted under the terms and conditions of Presidential
Decree No. 269 . . . are restored effective July 1, 1987. There is no other way to

construe it. The language of the law is plain and unambiguous. When the
language of the law is clear and unequivocal, the law must be taken to mean
exactly what it says.
Further, because taxes are the lifeblood of the nation, the court has always
applied the doctrine of strict interpretation in construing tax exemptions. A
claim for exemption from tax payments must be clearly shown and be based on
language in the law too plain to be mistaken. Elsewise stated, taxation is the
rule, exemption therefrom is the exception.[12]
Second, we rule on the issue of assessment of petitioners real properties.
Petitioner contests the assessment by respondent of its properties. It claims that
the tax declarations covering its properties were issued without prior
consultation, and without its knowledge and consent. In addition, it argues that
respondent classified its poles, towers and fixtures, overhead conductors and
devices, station equipment, line transformers, etc. as real properties when by
[their] nature, use, purpose, and destination and by substantive law and
jurisprudence, they are personal properties.[13]
However, petitioner does not deny having duly received the two Notices of
Assessment dated October 8, 1985 on October 10, 1985.[14] It also admits that
it did not file a protest before the Board of Assessment Appeals to question the
assessment.[15] Section 30 of PD No. 464,[16] otherwise known as the "The
Real Property Tax Code," provides:
Sec. 30. Local Board of Assessment Appeals. Any owner who is not satisfied with
the action of the provincial or city assessor in the assessment of his property
may, within sixty days from the date of receipt by him of the written notice of
assessment as provided in this Code, appeal to the Board of Assessment Appeals
of the province or city, by filing with it a petition under oath using the form
prescribed for the purpose, together with copies of the tax declarations and
such affidavit or documents submitted in support of the appeal.

SEC. 64. Restriction upon power of court to impeach tax. No court shall
entertain any suit assailing the validity of tax assessed under this Code until the
taxpayer shall have paid, under protest, the tax assessed against him nor shall
any court declare any tax invalid by reason of irregularities or informalities in the
proceedings of the officers charged with the assessment or collection of taxes,
or of failure to perform their duties within this time herein specified for their
performance unless such irregularities, informalities or failure shall have
impaired the substantial rights of the taxpayer; nor shall any court declare any
portion of the tax assessed under the provisions of Code invalid except upon
condition that the taxpayer shall pay the just amount of the tax, as determined
by the court in the pending proceeding. (Emphasis supplied)
IN VIEW WHEREOF, petitioners appeal is DENIED. The November 15, 2005
Decision of the Court of Appeals in CA-G.R. CV No. 67188 is AFFIRMED. Costs
against petitioner.
SO ORDERED.

REYNATO S. PUNO
Chief Justice
WE CONCUR:

ANTONIO T. CARPIO
Having failed to appeal the assessment of its properties to the Board of
Associate Justice
Assessment Appeals, petitioner cannot now assail the validity of the tax
assessment against it before the courts. Petitioner failed to exhaust its
administrative remedies, and the consequence for such failure is clear the tax
assessment, as computed and issued by the Office of the Provincial Assessor,
became final. Petitioner is deemed to have admitted the correctness of the
RENATO C. CORONA ADOLFO S. AZCUNA
assessment of its properties. In addition, Section 64 of PD No. 464 requires that Associate Justice Associate Justice
the taxpayer must first pay under protest the tax assessed against him before he
could seek recourse from the courts to assail its validity. The said section
provides:

was most recently organized or converted under this Decree: Provided, That the
Board of Administrators shall, after consultation with the Bureau of Internal
Revenue, promulgate rules and regulations for the proper implementation of
the tax exemptions provided for in this Decree.
xxx
CERTIFICATION
[4] Withdrawing, Subject to Certain Conditions, the Duty and Tax Privileges
Granted to Private Business Enterprises and/or Persons Engaged in any
Economic Activity, and for Other Purposes.
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
WHEREAS, the current economic crisis amounts to a grave emergency which
conclusions in the above decision had been reached in consultation before the
affects the stability of the nation and requires immediate action;
case was assigned to the writer of the opinion of the Courts Division.
WHEREAS, the issuance of this decree is an essential and necessary component
of the national economic recovery program formulated to meet and overcome
the emergency;
WHEREAS, Section 20 of Batas Pambansa Blg. 391, otherwise known as the
Investment Incentives Policy Act of 1983, authorizes the President to
REYNATO S. PUNO
restructure/rationalize all existing incentive systems/legislations to align them
Chief Justice
with overall economic development objectives and make them more responsive
and meaningful to changing circumstances;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Republic of the
Philippines, by virtue of the powers vested in me by the Constitution, do hereby
[1] Rollo, pp. 14-27.
order and decree:
[2] CA rollo, pp. 49-64.
Section 1. The provisions of any special or general law of the contrary
[3] PD No. 269. National Electrification Administration Decree (1973).
notwithstanding, all exemptions from or any preferential treatment in the
Sec. 39. Assistance to Cooperatives; Exemption from Taxes, Imposts, Duties,
payment of duties, taxes, fees, imposts and other charges heretofore granted to
Fees; Assistance from the National Power Corporation. Pursuant to the national private business enterprises and/or persons engaged in any economic activity
policy declared in Section 2, the Congress hereby finds and declares that the
are hereby withdrawn, except those enjoyed by the following:
following assistance to cooperative is necessary and appropriate:
(a) Those registered by the Board of Investments under Presidential Decree
(a) Provided that it operates in conformity with the purposes and provisions of
No. 1789, as amended by Batas Pambansa Blg. 391, and those registered by the
this Decree, cooperatives (1) shall be permanently exempt from paying income Export Processing Zone Authority under Presidential Decree No. 66, as amended
taxes, and (2) for a period ending on December 31 of the thirtieth full calendar
by Presidential Decree Nos. 1449, 1776-A and 1786;
year after the date of a cooperatives organization or conversion hereunder, or
(b) The copper mining industry in accordance with the provisions of LOI 1416;
until it shall become completely free of indebtedness incurred by borrowing,
(c) Those covered by international agreements to which the Philippines is a
whichever event first occurs, shall be exempt from the payment (a) of all
signatory;
National Government, local government and municipal taxes and fees, including (d) Those covered by the non-impairment clause of the Constitution; and
franchise, filing, recordation, license or permit fees or taxes and any fees,
(e) Those that will be approved by the President of the Philippines upon the
charges, or costs involved in any court or administrative proceeding in which it
recommendation of the Minister of Finance.
may be a party, and (b) of all duties or imposts on foreign goods acquired for its Section 2. The Ministry of Finance shall promulgate the necessary rules and
operations, the period of such exemption for a new cooperative formed by
regulations to effectively implement the provisions of this Decree.
consolidation, as provided for in Section 29, to begin from as of the date of the
beginning of such period for the constituent consolidating cooperative which
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

Section 3. All other laws, decrees, executive orders, administrative orders,

rules, regulations or parts thereof which are inconsistent with this Decree are
hereby repealed, amended or modified accordingly.
Section 4. This Decree shall take effect on October 15, 1984.
[5] P.D. No. 464, Sec. 7. Declaration of Real Property by the Assessor. When any
person, natural or juridical, by whom real property is required to be declared
under Section six hereof refuses or fails for any reason to make such declaration
within the time prescribed, the provincial or city assessor shall himself declare
the property in the name of the defaulting owner, if known, or against an
unknown owner, as the case may be, and shall assess the property for taxation
in accordance with the provisions of this Code. No oath shall be required of a
declaration thus made by the provincial or city assessor.
[6] Further Strengthening the Cooperative Movement by Amending Certain
Provisions of Presidential Decree Numbered One Hundred Seventy-Five, as
Amended by Presidential Decree Numbered Nineteen Hundred and Fifty-Five.
[7] Maceda v. Macaraig, G.R. No. 88291, May 31, 1991, 197 SCRA 771.
[8] RTC Records, p. 315.
[9] Rollo, p. 26.
[10] Id. at 3-10.
[11] Id. at 6.
[12] Paseo Realty & Development Corporation v. Court of Appeals, et al., G.R.
No. 119286, October 13, 2004, 440 SCRA 235.
[13] Answer with Affirmative Defenses & Counterclaim, RTC Records, p. 12.
[14] Exhibits K, K-1, L, and L-1, Exhibits of the Plaintiff, Civil Case No. 1550.
[15] Rollo, p. 9.
[16] Took effect on June 1, 1974.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 177333

April 24, 2009

PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR) represented

by ATTY. CARLOS R. BAUTISTA, JR., Petitioner,
vs.
PHILIPPINE GAMING JURISDICTION INCORPORATED (PEJI), ZAMBOANGA CITY
SPECIAL ECONOMIC ZONE AUTHORITY, et al., Respondent.
DECISION
CARPIO MORALES, J.:
Before the Court is a petition for Prohibition.
Republic Act No. 7903 (R.A. No. 7903), which was enacted into law on February
23, 1995, created the Zamboanga City Special Economic Zone
(ZAMBOECOZONE) and the ZAMBOECOZONE Authority. Among other things, the
law gives the ZAMBOECOZONE Authority the following power under Sec. 7 (f),
viz:
Section 7.
xxxx
(f) To operate on its own, either directly or through a subsidiary entity, or license
to others, tourism-related activities, including games, amusements and
recreational and sports facilities;
xxxx
Apparently in the exercise of its power granted under the above provision,
public respondent ZAMBOECOZONE Authority passed Resolution No. 2006-0803 dated August 19, 2006 approving the application of private respondent

Philippine E-Gaming Jurisdiction, Inc. (PEJI) to be a Master Licensor/Regulator of (PAGCOR) upon recommendation of the Conversion Authority; to maintain and
on-line/internet/electronic gaming/games of chance.
preserve the forested areas as a national park;
PEJI forthwith undertook extensive advertising campaigns representing itself as
such licensor/regulator to the international business and gaming community,
drawing the Philippine Amusement and Gaming Corporation (PAGCOR) to file
the present petition for Prohibition which assails the authority of the
ZAMBOECOZONE Authority to operate, license, or regulate the operation of
games of chance in the ZAMBOECOZONE.
PAGCOR contends that R.A. No. 7903, specifically Section 7(f) thereof, does not
give power or authority to the ZAMBOECOZONE Authority to operate, license, or
regulate the operation of games of chance in the ZAMBOECOZONE. Citing three
(3) statutes, which it claims are in pari materia with R.A. No. 7903 as it likewise
created economic zones and provided for the powers and functions of their
respective governing and administrative authorities, PAGCOR posits that the
grant therein of authority to operate games of chance is clearly expressed, but it
is not similarly so in Section 7(f) of R.A. No. 7903.
Thus PAGCOR cites these three statutes and their respective pertinent
provisions:
Republic Act No. 7227, or the "Bases Conversion and Development Authority
Act" enacted on March 13, 1992:
Section 13. The Subic Bay Metropolitan Authority.
xxxx
(b) Powers and functions of the Subic Bay Metropolitan Authority. The Subic
Bay Metropolitan Authority, otherwise known as the Subic Authority, shall have
the following powers and functions:
xxxx
(7) To operate directly or indirectly or license tourism-related activities subject
to priorities and standards set by the Subic Authority including games and
amusements, except horse-racing, dog-racing and casino gambling which shall
continue to be licensed by the Philippine Amusement and Gaming Corporation

xxxx
Republic Act No. 7922 or the "Cagayan Economic Zone Act of 1995" enacted on
February 24, 1995:
Section 6. Powers and Functions of the Cagayan Economic Zone Authority The
Cagayan Economic Zone Authority shall have the following powers and
functions:
xxxx
(f) To operate on its own, either directly or through a subsidiary entity, or license
to others, tourism-related activities, including games, amusements, recreational
and sports facilities such as horse-racing, dog-racing gambling, casinos, golf
courses, and others, under priorities and standards set by the CEZA;
xxxx
And Republic Act No. 7916 or the "Special Economic Zone Act of 1995," enacted
on February 24, 1995 authorizing other economic zones established under the
defunct Export Processing Zone Authority (EPZA) and its successor Philippine
Economic Zone Authority (PEZA) to establish casinos and other games of chance
under the license of PAGCOR by way of the ipso facto clause, viz:
SECTION 51. Ipso Facto Clause. - All privileges, benefits, advantages or
exemptions granted to special economic zones under Republic Act No. 7227
shall ipso facto be accorded to special economic zones already created or to be
created under this Act. The free port status shall not be vested upon the new
special economic zones.
PAGCOR maintains that, compared with the above-quoted provisions of the
ecozone-related statutes, Section 7(f) of R.A. No. 7903 does not categorically
empower the ZAMBOECOZONE Authority to operate, license, or authorize
entities to operate games of chance in the area, as the words "games" and
"amusement" employed therein do not include "games of chance." Hence,
PAGCOR concludes, ZAMBOECOZONE Authoritys grant of license to private
respondent PEJI encroached on its (PAGCORs) authority under Presidential

Decree No. 1869 vis-a-vis the above-stated special laws to centralize and
regulate all games of chance.
ZAMBOECOZONE Authority, in its Comment,1 contends that PAGCOR has no
personality to file the present petition as it failed to cite a superior law which
proves its claim of having been granted exclusive right and authority to license
and regulate all games of chance within the Philippines; and that, contrary to
PAGCORs assertion, the words "games" and "amusements" in Section 7(f) of
R.A. No. 7903 include "games of chance" as was the intention of the lawmakers
when they enacted the law.

The plain meaning rule or verba legis, derived from the maxim index animi
sermo est (speech is the index of intention), rests on the valid presumption that
the words employed by the legislature in a statute correctly express its intention
or will, and preclude the court from construing it differently. For the legislature
is presumed to know the meaning of the words, to have used them advisedly,
and to have expressed the intent by use of such words as are found in the
statute. Verba legis non est recedendum. From the words of a statute there
should be no departure.5

The words "game" and "amusement" have definite and unambiguous meanings
in law which are clearly different from "game of chance" or "gambling." In its
In its Reply Ex Abundante Ad Cautelam,2 PAGCOR cites the November 27, 2006 ordinary sense, a "game" is a sport, pastime, or contest; while an "amusement"
Opinion3 rendered by the Office of the President through Deputy Executive
is a pleasurable occupation of the senses, diversion, or enjoyment.6 On the
Secretary for Legal Affairs Manuel B. Gaite, the pertinent portions of which read: other hand, a "game of chance" is "a game in which chance rather than skill
determines the outcome," while "gambling" is defined as "making a bet" or "a
Coming to the issue at hand, the ZAMBOECOZONE Charter simply allows the
play for value against an uncertain event in hope of gaining something of value."
operation of tourism-related activities including games and amusements
7
without stating any form of gambling activity in its grant of authority to
ZAMBOECOZONE.
A comparison of the phraseology of Section 7(f) of R.A. No. 7903 with similar
provisions in the three cited statutes creating ECOZONES shows that while the
xxxx
three statutes, particularly R.A. No. 7922 which authorized the Cagayan
Economic Zone Authority to directly or indirectly operate gambling and casinos
In view of the foregoing, we are of the opinion that under its legislative franchise within its jurisdiction, categorically stated that such power was being vested in
(RA 7903), the ZAMBOECOZONE is not authorized to enter into any gaming
their respective administrative bodies, R.A. No. 7903 did not.
activity by itself unless expressly authorized by law or other laws specifically
allowing the same. (Emphasis and underscoring supplied)
The spirit and reason of the statute may be passed upon where a literal meaning
would lead to absurdity, contradiction, injustice, or defeat the clear purpose of
The Court finds that, indeed, R.A. No. 7903 does not authorize the
the lawmakers.8 Not any of these instances is present in the case at bar,
ZAMBOECOZONE Authority to operate and/or license games of
however. Using the literal meanings of "games" and "amusement" to exclude
chance/gambling.
"games of chance" and "gambling" does not lead to absurdity, contradiction, or
injustice. Neither does it defeat the intent of the legislators. The lawmakers
Section 7(f) of R.A. No. 7903 authorizes the ZAMBOECOZONE Authority "[t]o
could have easily employed the words "games of chance" and "gambling" or
operate on its own, either directly or through a subsidiary entity, or license to
even "casinos" if they had intended to grant the power to operate the same to
others, tourism-related activities, including games, amusements and
the ZAMBOECOZONE Authority, as what was done in R.A. No. 7922 enacted a
recreational and sports facilities."
day after R.A. No. 7903. But they did not.
It is a well-settled rule in statutory construction that where the words of a
statute are clear, plain, and free from ambiguity, it must be given its literal
meaning and applied without attempted interpretation.4

The Court takes note of the above-mentioned Opinion of the Office of the
President which, after differentiating the grant of powers between the Cagayan
Special Economic Zone and the ZAMBOECOZONE Authority, states that while the
former is authorized to, among other things, operate gambling casinos and

internet gaming, as well as enter into licensing agreements, the latter is not. The In fine, Section 7(f) did not grant to the ZAMBOECOZONE Authority the power to
relevant portions of said Opinion read:
operate and/or license games of chance/gambling.
The difference in the language and grant of powers to CEZA and
ZAMBOECOZONE is telling. To the former, the grant of powers is not only
explicit, but amplified, while to the latter the grant of power is merely what the
law (RA 7903) states. Not only are the differences in language telling, it will be
noted that both charters of CEZA and ZAMBOECOZONE were signed into law
only one (1) day apart from each other, i.e., February 23, 1995 in the case of
ZAMBOECOZONE and February 24, 1995 in the case of CEZA. x x x Accordingly,
both laws have to be taken in the light of what Congress intended them to be,
and the distinction that the lawmakers made when they enacted the two laws.
Coming to the issue at hand, the ZAMBOECOZONE Charter simply allows the
operation of tourism-related activities including games and amusements
without stating any form of gambling activity in its grant of authority to
ZAMBOECOZONE. On the other hand, the grant to CEZA included such activities
as horse-racing, dog-racing and gambling casinos.

WHEREFORE, the petition is GRANTED. Public respondent Zamboanga Economic

Zone Authority is DIRECTED to CEASE and DESIST from exercising jurisdiction to
operate, license, or otherwise authorize and regulate the operation of any
games of chance. And private respondent Philippine Gaming Jurisdiction,
Incorporated is DIRECTED to CEASE and DESIST from operating any games of
chance pursuant to the license granted to it by public respondent.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson
WE CONCUR:

DANTE O. TINGA
Associate Justice
PRESBITERO J. VELASCO, JR.
Associate Justice
In view of the foregoing, we are of the opinion that under its legislative franchise TERESITA J. LEONARDO DE CASTRO*
(RA 7903), the ZAMBOECOZONE is not authorized to enter into any gaming
Associate Justice
ARTURO D. BRION
activity by itself unless expressly authorized by law or other laws specifically
Associate Justice
allowing the same. (Emphasis supplied)
ATTESTATION
xxxx

Both PAGCOR and the Ecozones being under the supervision of the Office of the
President, the latters interpretation of R.A. No. 7903 is persuasive and deserves
respect under the doctrine of respect for administrative or practical
construction. In applying said doctrine, courts often refer to several factors
which may be regarded as bases thereof factors leading the courts to give the
principle controlling weight in particular instances, or as independent rules in
themselves. These factors include the respect due the governmental agencies
charged with administration, their competence, expertness, experience, and
informed judgment and the fact that they frequently are the drafters of the law
they interpret; that the agency is the one on which the legislature must rely to
advise it as to the practical working out of the statute, and practical application
of the statute presents the agency with unique opportunity and experiences for
discovering deficiencies, inaccuracies, or improvements in the statute.8

I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Acting Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above decision
had been reached in consultation before the case was assigned to the writer of
the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Footnotes

FIRST DIVISION
AGENCIA EXQUISITE OF G.R. No. 150141
BOHOL, INCORPORATED,
Petitioner,
Present:

* Additional member in lieu of Justice Leonardo A. Quisumbing who is on official

leave.
- versus - PUNO, C.J., Chairperson,
CARPIO,
1 Rollo, pp. 75-85.
CORONA,
AZCUNA, and
2 Id. at 99-109.
LEONARDO-DE CASTRO, JJ.
COMMISSIONER OF INTERNAL
3 Annex "A" of Reply, id. at 111-113.
REVENUE,
Respondent.
4 Vide National Food Authority (NFA) v. Masada Security Agency, Inc., G.R. No.
163448, March 8, 2005, 453 SCRA 70, 79; Philippine National Bank v. Garcia, Jr., X - - - - - - - - - - - - - - - - - - - - - - - - - - X
G.R. No. 141246, September 9, 2002, 388 SCRA 485, 487, 491.
COMMISSIONER OF INTERNAL G.R. No. 157359
5 Id.
REVENUE,
Petitioner,
6 Blacks Law Dictionary, Sixth Edition, West Publishing Co., St. Paul, Minnesota,
U.S.A., 1990, pp. 679 and 84.
- versus 7 Id. at 679.
8 Asturias v. Commissioner of Customs, G.R. No. L-19337, September 30, 1969,
29 SCRA 617, 623.

AGENCIA EXQUISITE OF
BOHOL, INCORPORATED,
Respondent.
X--------------------------X
EXQUISITE PAWNSHOP and G.R. No. 158644
JEWELRY, INC.,
Petitioner,
- versus -

COMMISSIONER OF INTERNAL Promulgated:

REVENUE,

Respondent. February 12, 2009

X ------------------------------------------------------------------------ X
DECISION

The RMO was later clarified by Revenue Memorandum Circular (RMC) No. 43-91
dated May 27, 1991, which reads:
1. RM[O] 15-91 dated March 11, 1991.

AZCUNA, J.:
This Circular subjects to the 5% lending investor's tax the gross income of
pawnshops pursuant to Section 116 of the Tax Code, and it thus revokes BIR
Ruling No. 6-90, and VAT Ruling Nos. 22-90 and 67-90. In order to have a
uniform cut-off date, avoid unfairness on the part of taxpayers if they are
required to pay the tax on past transactions, and so as to give meaning to the
express provisions of Section 246 of the Tax Code, pawnshop owners or
operators shall become liable to the lending investor's tax on their gross income
beginning January 1, 1991. Since the deadline for the filing of percentage tax
The second, docketed as G.R. No. 157359, assails the Decision[4] dated February return (BIR Form No. 2529A-0) and the payment of the tax on lending investors
6, 2003 of the CA in CA-G.R. SP No. 64117 affirming the Decision[5] of the CTA in covering the first calendar quarter of 1991 has already lapsed, taxpayers are
CTA Case No. 5990.
given up to June 30, 1991 within which to pay the said tax without penalty. If the
tax is paid after June 30, 1991, the corresponding penalties shall be assessed
Lastly, G.R. No. 158644 assails the Decision[6] of the CA in CA-G.R. SP No. 59401 and computed from April 21, 1991.
dated September 30, 2002 reversing and setting aside the Decision[7] and
Resolution of the CTA in CTA Case No. 5741, and the CAs Resolution[8] denying Since pawnshops are considered as lending investors effective January 1, 1991,
the motion for reconsideration.
they also become subject to documentary stamp taxes prescribed in Title VII of
the Tax Code. BIR Ruling No. 325-88 dated July 13, 1988 is hereby revoked.
On March 11, 1991, then Commissioner of Internal Revenue Jose U. Ong issued
Revenue Memorandum Order (RMO) No. 15-91 classifying the pawnshop
business as akin to the lending investors business activity which is broad enough Pursuant to these issuances, the Bureau of Internal Revenue (BIR) issued
to encompass the business of lending money at interest by any person whether Assessment Notice No. 84-PT-13-95-98-5-0-63, dated April 20, 1998, against
natural or juridical and imposing on both a 5% lending investor's tax based on
Agencia Exquisite of Bohol, Inc. (AEBI) demanding payment in the sum of
their gross income, pursuant to then Section 116 of the National Internal
P106,538.59 representing the 5% lending investors tax for 1995, plus interest
Revenue Code of 1977, as amended. The RMO reads:
and charges.[9]
Before this Court are three consolidated petitions for review. The first, docketed
as G.R. No. 150141, assails the Decision[1] of the Court of Appeals (CA) in CAG.R. SP No. 59282 dated March 23, 2001 reversing and setting aside the
Decision[2] of the Court of Tax Appeals (CTA) in CTA Case No. 5774, and the CAs
Resolution[3] dated September 25, 2001 denying the motion for
reconsideration.

A restudy of P.D. [No.] 114 shows that the principal activity of pawnshops is
lending money at interest and incidentally accepting a "pawn" of personal
property delivered by the pawner to the pawnee as security for the loan.(Sec. 3,
Ibid). Clearly, this makes pawnshop business akin to lending investor's business
activity which is broad enough to encompass the business of lending money at
interest by any person whether natural or juridical. Such being the case,
pawnshops shall be subject to the 5% lending investor's tax based on their gross
income pursuant to Section 116 of the Tax Code, as amended.

On June 28, 1998, AEBI filed its Administrative Protest which the BIR Revenue
Regional Director denied in a Letter-Decision dated February 3, 1999.[10]
Consequently, AEBI filed with the CTA a Petition for Review, docketed as CTA
Case No. 5774. On June 7, 2000, the CTA rendered its Decision in favor of AEBI
cancelling Assessment Notice No. 84-PT-13-95-98-5-0-63 and declaring RMO
No. 15-91 and RMC No. 43-91, in so far as they classify pawnshops as lending
investors subject to 5% lending investors tax, null and void.

The BIR then sought recourse before the CA in a Petition for Review, docketed
as CA-G.R. SP No. 59282. On March 23, 2001, the CA rendered a Decision
reversing and setting aside the decision of the CTA, the dispositive portion of
which reads:

xxx
(1)
REVERSING AND SETTING ASIDE the Decision of the Tax Court in CTA
Case No. 5774, and,
(2)
Condemning the respondent to pay the amount of Pesos: One Hundred
Six Thousand Five Hundred Thirty Eight and Fifty-nine Centavos (P106,538.59),
in concept of deficiency percentage tax/lending investors tax for the year 1995.
Without costs in this instance.
SO ORDERED.[11]

On March 14, 2001, the CTA rendered a Decision[14] in favor of AEBI cancelling
Assessment Notice No. 84-PT-13-94-99-9-081 and declaring RMO No. 15-91 and
RMC No. 43-91 null and void, in so far as they classify pawnshops as lending
investors subject to lending investors tax.[15]
The Commissioner filed a petition for review before the CA, docketed as CA-G.R.
SP No. 64117, arguing that the CTA erred in ruling that pawnshops are not
subject to the lending investors tax. He also invoked the decision of the CA in
CA-G.R. SP No. 59282, which held that the definition of the term pawnshop is
broad enough to encompass lending investors.[16]
On February 6, 2003, the CA rendered a Decision[17] in favor of AEBI and
against the Commissioner of Internal Revenue dismissing the appeal and
affirming the decision of the CTA. Hence, the present petition.
As regards G.R. No. 158644, pursuant to RMO No. 15-91 and RMC No. 43-91, on
May 25, 1998, the BIR Revenue Regional Director issued Assessment Notice No.
80-PT-13-96-98-5-0 against Exquisite Pawnshop and Jewelry, Inc. (EPJI)
demanding payment of the sum of P649,255.49, inclusive of interest and
surcharge, representing the 5% lending investors tax for the year 1995.[18]

AEBI filed a motion for reconsideration but it was denied in the Resolution dated On June 17, 1998, EPJI filed its Protest[19] but it was denied by the BIR Revenue
September 25, 2001.
Regional Director in a Letter[20] dated February 3, 1999.
Aggrieved, AEBI filed the present Petition for Review on Certiorari, docketed as
G.R. No. 150141.

On March 12, 1999, EPJI filed its petition for review before the CTA, docketed as
CTA Case No. 5741, arguing inter alia that: there is no specific provision in the
Tax Code and the VAT law which imposes a 5% tax on pawnshops; that
As regards G.R. No. 157359, pursuant to RMO No. 15-91 and RMC No. 43-91, on pawnshops are different from lending investors; that pawn tickets are not
September 25, 1999, the BIR Revenue Regional Director issued Assessment
subject to documentary stamp tax; and that RMO No. 15-91 and RMC No. 43-91
Notice No. 84-PT-13-94-99-9-081 against AEBI demanding the payment of
are null and void.[21]
deficiency percentage tax in the sum of P66,373.49 for the year 1994, inclusive
of interest and surcharge.[12]
On April 24, 2000, the CTA rendered a Decision[22] granting the petition in favor
of EPJI and consequently cancelling Assessment Notice No. 80-PT-13-96-98-5-0
AEBI filed a protest.
and declaring RMO No. 15-91 and RMC No. 43-91 null and void, in so far as they
classify pawnshops as lending investors subject to lending investors tax.[23] The
In a Letter-Resolution dated November 12, 1999, the Commissioner denied
Commissioner filed a Motion for Reconsideration but it was denied in the
AEBIs protest. Consequently, AEBI filed a petition for review before the CTA,
Resolution dated June 9, 2000.[24]
docketed as CTA Case No. 5990, reiterating the arguments it raised in its
protest.[13]

Aggrieved, the Commissioner sought recourse before the CA in a petition for

review,[25] docketed as CA-G.R. SP No. 59401.

The Court agrees with the contentions of AEBI and EPJI, the issue herein not
being a novel one.

On September 30, 2002, the CA rendered a Decision, granting the petition in

favor of the Commissioner. The decretal portion of which reads:
WHEREFORE, premises considered, the instant petition for review is GIVEN DUE
COURSE and hereby GRANTED. The decision of the Court of Tax Appeals dated
April 24, 2000 and Resolution dated June 9, 2000 of the Tax Court are hereby
REVERSED and SET ASIDE. Respondent is hereby ordered to pay the amount of
P649,255.49 as 5% deficiency lending investors tax for the year 1995, plus 25%
surcharge and 20% annual interest from June 24, 1998 until fully paid pursuant
to Sections 248 and 249 of the Tax Code.

In Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,[31]

this Court held that pawnshops are not included in the term lending investors
for the purpose of imposing the 5% percentage tax under then Section 116 of
the National Internal Revenue Code of 1977, as amended by Executive Order
No. 273. Thus, while pawnshops are indeed engaged in the business of lending
money, they cannot be deemed lending investors for the purpose of imposing
the 5% lending investors tax.

SO ORDERED.[26]

Again, in Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc.,[32]

this Court reiterated its ruling in Lhuillier that pawnshops are not included in the
term lending investors for the purpose of imposing the 5% percentage tax.
The rulings are buttressed by the following reasons:

Thus, this petition.

First. Under Section 192, paragraph 3, sub-paragraphs (dd) and (ff) of the NIRC
In a Resolution[27] dated August 13, 2003, G.R. No. 150141 G.R. No. 157359 and of 1997, prior to its amendment by E.O. No. 273, as well as Section 161,
G.R. No. 158644 were consolidated.
paragraph 2, sub-paragraphs (dd) and (ff) of the NIRC of 1986, pawnshops and
lending investors were subjected to different tax treatments, thus:
The sole issue for the Courts determination is whether or not pawnshops are
(3) Other Fixed Taxes. The following fixed taxes shall be collected as follows, the
liable for the payment of the 5% lending investors tax.
amount stated being for the whole year, when not otherwise specified:
xxx
AEBI and EPJI argue that there are no specific provisions in the Tax Code that
(dd) Lending Investors
subject pawnshops to 5% lending investors tax. They claim that there is a big
1. In chartered cities and first class municipalities, one thousand pesos;
difference between the nature of a pawnshop business and that of a lending
2. In second and third class municipalities, five hundred pesos;
investor. They also contend that RMO No. 15-91 and RMC No. 43-91 violate the 3. In fourth and fifth class municipalities and municipal districts, two hundred
Constitutional guarantees of due process and equal protection of the laws and
fifty pesos: Provided, That lending investors who do business as such in more
that they are unconstitutional as they encroached on the legislative
than one province shall pay a tax of one thousand pesos.
prerogative.[28]
xxx
(ff) Pawnshops, one thousand pesos.
Moreover, AEBI and EPJI argue that applying the principles of stare decisis, this Second. Congress never intended pawnshops to be treated in the same way as
Court in the case of Commissioner of Internal Revenue v. Lhuillier[29] has
lending investors. Section 116 of the NIRC of 1977, as renumbered and
already held that pawnshops are not considered lending investors for the
rearranged by E.O. No. 273, was basically lifted from Section 175 (formerly Sec.
purpose of imposing the 5% percentage tax. Pursuant to the ruling in the
209, NIRC of 1977, as amended by P.D. 1739, Sept. 17, 1980) of the NIRC of
Lhuillier case, the BIR through the Commissioner of Internal Revenue has issued 1986, which treated both tax subjects differently. Section 175 of the latter Code
RMC No. 36-2004 ordering the cancellation of all lending investors tax
reads as follows:
assessments on pawnshops.[30]
Sec. 175. Percentage tax on dealers in securities, lending investors. Dealers in
securities shall pay a tax equivalent to six percent (6%) of their gross income.

Lending investors shall pay a tax equivalent to five percent (5%) of their gross
income. (As amended by P.D. No. 1739, P.D. No. 1959, and P.D. No. 1994).
We note that the definition of lending investors found in Section 157 (u) of the
NIRC of 1986 is not found in the NIRC of 1977, as amended by E.O. No. 273,
where Section 116 invoked by the CIR is found. However, as emphasized earlier,
both the NIRC of 1986 and NIRC of 1977 dealt with pawnshops and lending
investors differently. Verily then, it was the intent of Congress to deal with both
subjects differently. Hence, we must likewise interpret the statute to conform to
such legislative intent.
Third. Section 116 of the NIRC of 1977, as amended by E.O. No. 273, subjects to
percentage tax dealers in securities and lending investors only. There is no
mention of pawnshops. Under the maxim expressio unius est exclusio alterius,
the mention of one thing implies the exclusion of another thing not mentioned.
Thus, if a statute enumerates the things upon which it is to operate, everything
else must necessarily and by implication be excluded from its operation and
effect (Vera v. Fernandez, L-31364, March 30, 1979, 89 SCRA 199, 203). This
rule, as a guide to probable legislative intent, is based upon the rules of logic
and natural workings of the human mind (Republic v. Estenzo, L-35376,
September 11, 1980, 99 SCRA 651, 656).
Fourth. The BIR had ruled several times prior to the issuance of RMO No. 15-91
and RMC No. 43-91 that pawnshops were not subject to the 5% percentage tax
imposed by Section 116 of the NIRC of 1977, as amended by E.O. No. 273. This
was even admitted by the CIR in RMO No. 15-91 itself. Considering that Section
116 of the NIRC of 1977, as amended, was practically lifted from Section 175 of
the NIRC of 1986, as amended, and there being no change in the law, the
interpretation thereof should not have been altered.
xxx
R.A. No. 7716 (An Act Restructuring the Value-added Tax (VAT) System,
Widening Its Tax Base and Enhancing Its Administrative, and for These Purposes
Amending and Repealing the Relevant Provisions of the National Internal
Revenue Code, as amended, and for Other Purposes.) repealed Section 116 of
NIRC of 1977, as amended, which was the basis of RMO No. 15-91 and RMC No.
43-91, thus:
xxx
Since Section 116 of the NIRC of 1977, which breathed life on the questioned
administrative issuances, had already been repealed, RMO 15-91 and RMC 4391, which depended upon it, are deemed automatically repealed. Hence, even
granting that pawnshops are included within the term lending investors, the
assessment from May 27, 1994 onward would have no leg to stand on.

Adding to the invalidity of RMC No. 43-91 and RMO No. 15-91 is the absence of
publication. While the rule-making authority of the CIR is not doubted, like any
other government agency, the CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative powers.
xxx
RMO No. 15-91 and RMC No. 43-91 cannot be viewed simply as implementing
rules or corrective measures revoking in the process the previous rulings of past
Commissioners. Specifically, they would have been amendatory provisions
applicable to pawnshops. xxx. The due observance of the requirements of
notice, hearing, and publication should not have been ignored.
xxx
In view of the foregoing, RMO No. 15-91 and RMC No. 4391 are hereby declared
null and void. Consequently, Lhuillier is not liable to pay the 5% lending investors
tax.[33] (Emphasis added)
Under the doctrine of stare decisis et not quieta movere[34] it behooves the
Court to apply its previous ruling in Lhuillier and Trustworthy to the cases under
consideration. Once a case has been decided one way, any other case involving
exactly the same point at issue, as in the present consolidated cases, should be
decided in the same manner. [35]
Consequently, this Court finds in G.R. No. 157359 that the CA committed no
reversible error in dismissing the appeal and affirming the decision of the CTA.
However, in G.R. No. 150141 and G.R. No. 158644, pursuant to Lhuillier and
Trustworthy, the decisions and resolutions of the CA should be reversed and set
aside.
WHEREFORE, the petitions of Agencia Exquisite of Bohol, Inc. and Exquisite
Pawnshop and Jewelry, Inc. in G.R. No. 150141 and G.R. No. 158644,
respectively, are GRANTED. The Decisions and Resolutions of the Court of
Appeals in CA-G.R. SP Nos. 59282 and 59401 are REVERSED and SET ASIDE, and
the Decisions of the Court of Tax Appeals in CTA Case Nos. 5774 and 5741 are
REINSTATED.
The petition of the Commissioner of Internal Revenue in G.R. No. 157359 is
hereby DENIED. The Decision of the Court of Appeals in CA-G.R. SP No. 64117 is
AFFIRMED.
No pronouncement as to costs.

SO ORDERED.

ADOLFO S. AZCUNA
Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Courts Division.

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANTONIO T. CARPIO RENATO C. CORONA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

REYNATO S. PUNO
Chief Justice

[1] Penned by Associate Justice Renato C. Dacudao with Associate Justices

Bienvenido L. Reyes and Perlita J. Tria Tirona concurring; rollo (G.R. No. 150141),
pp. 43-52.
[2] Id. at 54-64.
[3] Id. at 53.
[4] Penned by Associate Justice Edgardo P. Cruz with Associate Justices Portia
Alio-Hormachuelos and Danilo B. Pine concurring; rollo (G.R. No. 157359), pp.
35-43.
[5] Id. at 44-50.
[6] Penned by Associate Justice Bernardo P. Abesamis with Associate Justices
Cancio C. Garcia (later Supreme Court Associate Justice) and Rebecca De GuiaSalvador concurring; rollo (G.R. No. 158644), pp. 44-54.
[7] Id. at 58-70.
[8] Id. at 57.
[9] Rollo (G.R. No. 150141), p. 230.
[10] Id.

[11] Id. at 51-52.

[12] Rollo (G.R. No. 157359), p. 225.
[13] Id. at 226.
[14] Id. at 44-50.
[15] Id. at 50.
[16] Id. at 15.
[17] Id. at 35-43.
[18] Rollo (G.R. No. 158644), p. 238.
[19] Id. at 31-34.
[20] Id. at 21-22.
[21] Id. at 61.
[22] Id. at 58-70.
[23] Id. at 70.
[24] Id. at 44.
[25] Id. at 71-85.
[26] Id. at 54.
[27] Rollo (G.R. No. 158644), p. 127.
[28] Rollo (G.R. No. 150141), p. 240.
[29] 453 Phil. 1043, 1054-1059 (2003).
[30] Id.
[31] Id. at 1043. The subject of the case was Assessment Notice No. 81-PT-1394-97-9-118 dated September 11, 1997, issued by the Bureau of Internal
Revenue against Michel Lhuillier Pawnshop, demanding payment of deficiency
percentage tax in the sum of P3,360,335.11 for 1994, inclusive of interest and
surcharges.
[32] G.R. No. 149834, May 2, 2006, 488 SCRA 538. The subject of the case was
Assessment Notice No. 81-PT-13-94-97-6-73 dated June 13, 1997, issued by the
Bureau of Internal Revenue against Trustworthy Pawnshop, Inc., demanding
payment of deficiency percentage tax in the sum of P2,108,335.19 for 1994,
inclusive of interest and surcharges and the additional amount of P93,000.00 as
compromise penalty.
[33] Commissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.,
supra note 29.
[34] Commissioner of Internal Revenue v. Trustworthy Pawnshop, Inc., supra
note 32.
[35] Manila Electric Company, Inc. v. Lualhati, G.R. No. 166769, December 6,
2006, 510 SCRA 455, 471; Pines City Educational Center v. National Labor
Relations Commission, G.R. No. 96779, November 10, 1993, 227 SCRA 655, 665;
Associated Sugar, Inc. v. Commissioner of Customs, G.R. No. L-30391, November
25, 1982, 118 SCRA 657, 663.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-30061

February 27, 1974

THE PEOPLE OF THE PHILIPPINES, plaintiff-appellees,

vs.
JOSE JABINAL Y CARMEN, defendant-appellant.
Office of the Solicitor General Felix V. Makasiar and Solicitor Antonio M.
Martinez for plaintiff-appellee.
Pedro Panganiban y Tolentino for defendant-appellant.
ANTONIO, J.:p
Appeal from the judgment of the Municipal Court of Batangas (provincial
capital), Batangas, in Criminal Case No. 889, finding the accused guilty of the
crime of Illegal Possession of Firearm and Ammunition and sentencing him to
suffer an indeterminate penalty ranging from one (1) year and one (1) day to
two (2) years imprisonment, with the accessories provided by law, which raises
in issue the validity of his conviction based on a retroactive application of Our
ruling in People v. Mapa. 1
The complaint filed against the accused reads:
That on or about 9:00 o'clock, p.m., the 5th day of September, 1964, in the
poblacion, Municipality of Batangas, Province of Batangas, Philippines, and
within the jurisdiction of this Honorable Court, the above-named accused, a
person not authorized by law, did then and there wilfully, unlawfully and
feloniously keep in his possession, custody and direct control a revolver Cal. .22,
RG8 German Made with one (1) live ammunition and four (4) empty shells
without first securing the necessary permit or license to possess the same.
At the arraignment on September 11, 1964, the accused entered a plea of not
guilty, after which trial was accordingly held.

The accused admitted that on September 5, 1964, he was in possession of the

revolver and the ammunition described in the complaint, without the requisite
license or permit. He, however, claimed to be entitled to exoneration because,
although he had no license or permit, he had an appointment as Secret Agent
from the Provincial Governor of Batangas and an appointment as Confidential
Agent from the PC Provincial Commander, and the said appointments expressly
carried with them the authority to possess and carry the firearm in question.
Indeed, the accused had appointments from the above-mentioned officials as
claimed by him. His appointment from Governor Feliciano Leviste, dated
December 10, 1962, reads:
Reposing special trust and confidence in your civic spirit, and trusting that you
will be an effective agent in the detection of crimes and in the preservation of
peace and order in the province of Batangas, especially with respect to the
suppression of trafficking in explosives, jueteng, illegal cockfighting, cattle
rustling, robbery and the detection of unlicensed firearms, you are hereby
appointed a SECRET AGENT of the undersigned, the appointment to take effect
immediately, or as soon as you have qualified for the position. As such Secret
Agent, your duties shall be those generally of a peace officer and particularly to
help in the preservation of peace and order in this province and to make reports
thereon to me once or twice a month. It should be clearly understood that any
abuse of authority on your part shall be considered sufficient ground for the
automatic cancellation of your appointment and immediate separation from the
service. In accordance with the decision of the Supreme Court in G.R. No. L12088 dated December 23, 1959, you will have the right to bear a firearm,
particularly described below, for use in connection with the performance of
your duties.
By virtue hereof, you may qualify and enter upon the performance of your
duties by taking your oath of office and filing the original thereof with us.
Very truly yours,
(Sgd.) FELICIANO LEVISTE
Provincial Governor
FIREARM AUTHORIZED TO CARRY:
Kind: ROHM-Revolver

Make: German
SN: 64
Cal: .22
On March 15, 1964, the accused was also appointed by the PC Provincial
Commander of Batangas as Confidential Agent with duties to furnish
information regarding smuggling activities, wanted persons, loose firearms,
subversives and other similar subjects that might affect the peace and order
condition in Batangas province, and in connection with these duties he was
temporarily authorized to possess a ROHM revolver, Cal. .22 RG-8 SN-64, for his
personal protection while in the performance of his duties.
The accused contended before the court a quo that in view of his abovementioned appointments as Secret Agent and Confidential Agent, with authority
to possess the firearm subject matter of the prosecution, he was entitled to
acquittal on the basis of the Supreme Court's decision in People vs.
Macarandang 2 and People vs. Lucero. 3 The trial court, while conceding on the
basis of the evidence of record the accused had really been appointed Secret
Agent and Confidential Agent by the Provincial Governor and the PC Provincial
Commander of Batangas, respectively, with authority to possess and carry the
firearm described in the complaint, nevertheless held the accused in its decision
dated December 27, 1968, criminally liable for illegal possession of a firearm and
ammunition on the ground that the rulings of the Supreme Court in the cases of
Macarandang and Lucero were reversed and abandoned in People vs. Mapa,
supra. The court considered as mitigating circumstances the appointments of
the accused as Secret Agent and Confidential Agent.
Let us advert to Our decisions in People v. Macarandang, supra, People v.
Lucero, supra, and People v. Mapa, supra. In Macarandang, We reversed the
trial court's judgment of conviction against the accused because it was shown
that at the time he was found to possess a certain firearm and ammunition
without license or permit, he had an appointment from the Provincial Governor
as Secret Agent to assist in the maintenance of peace and order and in the
detection of crimes, with authority to hold and carry the said firearm and
ammunition. We therefore held that while it is true that the Governor has no
authority to issue any firearm license or permit, nevertheless, section 879 of the
Revised Administrative Code provides that "peace officers" are exempted from
the requirements relating to the issuance of license to possess firearms; and
Macarandang's appointment as Secret Agent to assist in the maintenance of
peace and order and detection of crimes, sufficiently placed him in the category

of a "peace officer" equivalent even to a member of the municipal police who

under section 879 of the Revised Administrative Code are exempted from the
requirements relating to the issuance of license to possess firearms. In Lucero,
We held that under the circumstances of the case, the granting of the
temporary use of the firearm to the accused was a necessary means to carry out
the lawful purpose of the batallion commander to effect the capture of a Huk
leader. In Mapa, expressly abandoning the doctrine in Macarandang, and by
implication, that in Lucero, We sustained the judgment of conviction on the
following ground:

the New Civil Code "Judicial decisions applying or interpreting the laws or the
Constitution shall form a part of the legal system ... ." The interpretation upon a
law by this Court constitutes, in a way, a part of the law as of the date that law
originally passed, since this Court's construction merely establishes the
contemporaneous legislative intent that law thus construed intends to
effectuate. The settled rule supported by numerous authorities is a restatement
of legal maxim "legis interpretatio legis vim obtinet" the interpretation placed
upon the written law by a competent court has the force of law. The doctrine
laid down in Lucero and Macarandang was part of the jurisprudence, hence of
the law, of the land, at the time appellant was found in possession of the firearm
The law is explicit that except as thereafter specifically allowed, "it shall be
in question and when he arraigned by the trial court. It is true that the doctrine
unlawful for any person to ... possess any firearm, detached parts of firearms or was overruled in the Mapa case in 1967, but when a doctrine of this Court is
ammunition therefor, or any instrument or implement used or intended to be
overruled and a different view is adopted, the new doctrine should be applied
used in the manufacture of firearms, parts of firearms, or ammunition." (Sec.
prospectively, and should not apply to parties who had relied on the old
878, as amended by Republic Act No. 4, Revised Administrative Code.) The next doctrine and acted on the faith thereof. This is especially true in the
section provides that "firearms and ammunition regularly and lawfully issued to construction and application of criminal laws, where it is necessary that the
officers, soldiers, sailors, or marines [of the Armed Forces of the Philippines], the punishability of an act be reasonably foreseen for the guidance of society.
Philippine Constabulary, guards in the employment of the Bureau of Prisons,
municipal police, provincial governors, lieutenant governors, provincial
It follows, therefore, that considering that appellant conferred his appointments
treasurers, municipal treasurers, municipal mayors, and guards of provincial
as Secret Agent and Confidential Agent and authorized to possess a firearm
prisoners and jails," are not covered "when such firearms are in possession of
pursuant to the prevailing doctrine enunciated in Macarandang and Lucero,
such officials and public servants for use in the performance of their official
under which no criminal liability would attach to his possession of said firearm in
duties." (Sec. 879, Revised Administrative Code.)
spite of the absence of a license and permit therefor, appellant must be
absolved. Certainly, appellant may not be punished for an act which at the time
The law cannot be any clearer. No provision is made for a secret agent. As such it was done was held not to be punishable.
he is not exempt. ... .
WHEREFORE, the judgment appealed from is hereby reversed, and appellant is
It will be noted that when appellant was appointed Secret Agent by the
acquitted, with costs de oficio.
Provincial Government in 1962, and Confidential Agent by the Provincial
Commander in 1964, the prevailing doctrine on the matter was that laid down
Zaldivar (Chairman), Barredo, Fernandez and Aquino, JJ., concur.
by Us in People v. Macarandang (1959) and People v. Lucero (1958). Our
decision in People v. Mapa reversing the aforesaid doctrine came only in 1967. Fernando, J., took no part.
The sole question in this appeal is: Should appellant be acquitted on the basis of
Our rulings in Macarandang and Lucero, or should his conviction stand in view of Footnotes
the complete reversal of the Macarandang and Lucero doctrine in Mapa? The
1
L-22301, August 30, 1967, 20 SCRA 1164.
Solicitor General is of the first view, and he accordingly recommends reversal of 2
106 Phil. (1959), 713.
the appealed judgment.
3
103 Phil. (1958), 500.
Decisions of this Court, although in themselves not laws, are nevertheless
evidence of what the laws mean, and this is the reason why under Article 8 of

THIRD DIVISION

CEMCO HOLDINGS, INC.,

Petitioner,

This Petition for Review under Rule 45 of the Rules of Court seeks to reverse and
set aside the 24 October 2005 Decision[1] and the 6 March 2006 Resolution[2]
of the Court of Appeals in CA-G.R. SP No. 88758 which affirmed the judgment[3]
dated 14 February 2005 of the Securities and Exchange Commission (SEC)
finding that the acquisition of petitioner Cemco Holdings, Inc. (Cemco) of the
shares of stock of Bacnotan Consolidated Industries, Inc. (BCI) and Atlas Cement
Corporation (ACC) in Union Cement Holdings Corporation (UCHC) was covered
by the Mandatory Offer Rule under Section 19 of Republic Act No. 8799,
otherwise known as the Securities Regulation Code.
The Facts

- versus -

NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, INC.,

Respondent.
G.R. No. 171815
Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

Union Cement Corporation (UCC), a publicly-listed company, has two principal

stockholders UCHC, a non-listed company, with shares amounting to 60.51%,
and petitioner Cemco with 17.03%. Majority of UCHCs stocks were owned by
BCI with 21.31% and ACC with 29.69%. Cemco, on the other hand, owned 9% of
UCHC stocks.
In a disclosure letter dated 5 July 2004, BCI informed the Philippine Stock
Exchange (PSE) that it and its subsidiary ACC had passed resolutions to sell to
Cemco BCIs stocks in UCHC equivalent to 21.31% and ACCs stocks in UCHC
equivalent to 29.69%.
In the PSE Circular for Brokers No. 3146-2004 dated 8 July 2004, it was stated
that as a result of petitioner Cemcos acquisition of BCI and ACCs shares in UCHC,
petitioners total beneficial ownership, direct and indirect, in UCC has increased
by 36% and amounted to at least 53% of the shares of UCC, to wit[4]:

Promulgated:
August 7, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Particulars
Percentage
Existing shares of Cemco in UCHC
9%
Acquisition by Cemco of BCIs and ACCs shares in UCHC
51%
Total stocks of Cemco in UCHC
60%
Percentage of UCHC ownership in UCC
60%
Indirect ownership of Cemco in UCC
36%

Direct ownership of Cemco in UCC

17%
Total ownership of Cemco in UCC
53%

In a Decision dated 14 February 2005, the SEC ruled in favor of the respondent
by reversing and setting aside its 27 July 2004 Resolution and directed petitioner
Cemco to make a tender offer for UCC shares to respondent and other holders
of UCC shares similar to the class held by UCHC in accordance with Section 9(E),
Rule 19 of the Securities Regulation Code.

As a consequence of this disclosure, the PSE, in a letter to the SEC dated 15 July
2004, inquired as to whether the Tender Offer Rule under Rule 19 of the
Implementing Rules of the Securities Regulation Code is not applicable to the
purchase by petitioner of the majority of shares of UCC.

Petitioner filed a petition with the Court of Appeals challenging the SECs
jurisdiction to take cognizance of respondents complaint and its authority to
require Cemco to make a tender offer for UCC shares, and arguing that the
tender offer rule does not apply, or that the SECs re-interpretation of the rule
could not be made to retroactively apply to Cemcos purchase of UCHC shares.

In a letter dated 16 July 2004, Director Justina Callangan of the SECs Corporate
Finance Department responded to the query of the PSE that while it was the
stance of the department that the tender offer rule was not applicable, the
matter must still have to be confirmed by the SEC en banc.
Thereafter, in a subsequent letter dated 27 July 2004, Director Callangan
confirmed that the SEC en banc had resolved that the Cemco transaction was
not covered by the tender offer rule.
On 28 July 2004, feeling aggrieved by the transaction, respondent National Life
Insurance Company of the Philippines, Inc., a minority stockholder of UCC, sent
a letter to Cemco demanding the latter to comply with the rule on mandatory
tender offer. Cemco, however, refused.

The Court of Appeals rendered a decision affirming the ruling of the SEC. It ruled
that the SEC has jurisdiction to render the questioned decision and, in any
event, Cemco was barred by estoppel from questioning the SECs jurisdiction. It,
likewise, held that the tender offer requirement under the Securities Regulation
Code and its Implementing Rules applies to Cemcos purchase of UCHC stocks.
The decretal portion of the said Decision reads:
IN VIEW OF THE FOREGOING, the assailed decision of the SEC is AFFIRMED, and
the preliminary injunction issued by the Court LIFTED.[5]
Cemco filed a motion for reconsideration which was denied by the Court of
Appeals.

On 5 August 2004, a Share Purchase Agreement was executed by ACC and BCI,
as sellers, and Cemco, as buyer.

Hence, the instant petition.

On 12 August 2004, the transaction was consummated and closed.

In its memorandum, petitioner Cemco raises the following issues:

On 19 August 2004, respondent National Life Insurance Company of the

Philippines, Inc. filed a complaint with the SEC asking it to reverse its 27 July
2004 Resolution and to declare the purchase agreement of Cemco void and
praying that the mandatory tender offer rule be applied to its UCC shares.
Impleaded in the complaint were Cemco, UCC, UCHC, BCI and ACC, which were
then required by the SEC to file their respective comment on the complaint. In
their comments, they were uniform in arguing that the tender offer rule applied
only to a direct acquisition of the shares of the listed company and did not
extend to an indirect acquisition arising from the purchase of the shares of a
holding company of the listed firm.

I.
ASSUMING ARGUENDO THAT THE SEC HAS JURISDICTION OVER NATIONAL LIFES
COMPLAINT AND THAT THE SECS RE-INTERPRETATION OF THE TENDER OFFER
RULE IS CORRECT, WHETHER OR NOT THAT REINTERPRETATION CAN BE APPLIED
RETROACTIVELY TO CEMCOS PREJUDICE.
II.
WHETHER OR NOT THE SEC HAS JURISDICTION TO ADJUDICATE THE DISPUTE
BETWEEN THE PARTIES A QUO OR TO RENDER JUDGMENT REQUIRING CEMCO
TO MAKE A TENDER OFFER FOR UCC SHARES.

III.
WHETHER OR NOT CEMCOS PURCHASE OF UCHC SHARES IS SUBJECT TO THE
TENDER OFFER REQUIREMENT.

Petitioner further contends that in the absence of any specific grant of

jurisdiction by Congress, the SEC cannot, by mere administrative regulation,
confer on itself that jurisdiction.

Petitioners stance fails to persuade.

IV.
WHETHER OR NOT THE SEC DECISION, AS AFFIRMED BY THE CA DECISION, IS AN In taking cognizance of respondents complaint against petitioner and eventually
INCOMPLETE JUDGMENT WHICH PRODUCED NO EFFECT.[6]
rendering a judgment which ordered the latter to make a tender offer, the SEC
was acting pursuant to Rule 19(13) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code, to wit:
Simply stated, the following are the issues:
13. Violation
1.
Whether or not the SEC has jurisdiction over respondents complaint If there shall be violation of this Rule by pursuing a purchase of equity shares of
and to require Cemco to make a tender offer for respondents UCC shares.
a public company at threshold amounts without the required tender offer, the
Commission, upon complaint, may nullify the said acquisition and direct the
2.
Whether or not the rule on mandatory tender offer applies to the
holding of a tender offer. This shall be without prejudice to the imposition of
indirect acquisition of shares in a listed company, in this case, the indirect
other sanctions under the Code.
acquisition by Cemco of 36% of UCC, a publicly-listed company, through its
purchase of the shares in UCHC, a non-listed company.
The foregoing rule emanates from the SECs power and authority to regulate,
3.
Whether or not the questioned ruling of the SEC can be applied
investigate or supervise the activities of persons to ensure compliance with the
retroactively to Cemcos transaction which was consummated under the
Securities Regulation Code, more specifically the provision on mandatory tender
authority of the SECs prior resolution.
offer under Section 19 thereof.[7]

On the first issue, petitioner Cemco contends that while the SEC can take
cognizance of respondents complaint on the alleged violation by petitioner
Cemco of the mandatory tender offer requirement under Section 19 of Republic
Act No. 8799, the same statute does not vest the SEC with jurisdiction to
adjudicate and determine the rights and obligations of the parties since, under
the same statute, the SECs authority is purely administrative. Having been
vested with purely administrative authority, the SEC can only impose
administrative sanctions such as the imposition of administrative fines, the
suspension or revocation of registrations with the SEC, and the like. Petitioner
stresses that there is nothing in the statute which authorizes the SEC to issue
orders granting affirmative reliefs. Since the SECs order commanding it to make
a tender offer is an affirmative relief fixing the respective rights and obligations
of parties, such order is void.

Another provision of the statute, which provides the basis of Rule 19(13) of the
Amended Implementing Rules and Regulations of the Securities Regulation
Code, is Section 5.1(n), viz:
[T]he Commission shall have, among others, the following powers and functions:
xxxx
(n) Exercise such other powers as may be provided by law as well as those which
may be implied from, or which are necessary or incidental to the carrying out of,
the express powers granted the Commission to achieve the objectives and
purposes of these laws.

The foregoing provision bestows upon the SEC the general adjudicative power
which is implied from the express powers of the Commission or which is

incidental to, or reasonably necessary to carry out, the performance of the

administrative duties entrusted to it. As a regulatory agency, it has the incidental
power to conduct hearings and render decisions fixing the rights and obligations
of the parties. In fact, to deprive the SEC of this power would render the agency
inutile, because it would become powerless to regulate and implement the law.
As correctly held by the Court of Appeals:
We are nonetheless convinced that the SEC has the competence to render the
particular decision it made in this case. A definite inference may be drawn from
the provisions of the SRC that the SEC has the authority not only to investigate
complaints of violations of the tender offer rule, but to adjudicate certain rights
and obligations of the contending parties and grant appropriate reliefs in the
exercise of its regulatory functions under the SRC. Section 5.1 of the SRC allows
a general grant of adjudicative powers to the SEC which may be implied from or
are necessary or incidental to the carrying out of its express powers to achieve
the objectives and purposes of the SRC. We must bear in mind in interpreting
the powers and functions of the SEC that the law has made the SEC primarily a
regulatory body with the incidental power to conduct administrative hearings
and make decisions. A regulatory body like the SEC may conduct hearings in the
exercise of its regulatory powers, and if the case involves violations or conflicts
in connection with the performance of its regulatory functions, it will have the
duty and authority to resolve the dispute for the best interests of the public.[8]

For sure, the SEC has the authority to promulgate rules and regulations, subject
to the limitation that the same are consistent with the declared policy of the
Code. Among them is the protection of the investors and the minimization, if
not total elimination, of fraudulent and manipulative devises. Thus, Subsection
5.1(g) of the law provides:
Prepare, approve, amend or repeal rules, regulations and orders, and issue
opinions and provide guidance on and supervise compliance with such rules,
regulations and orders.

Also, Section 72 of the Securities Regulation Code reads:

72.1. x x x To effect the provisions and purposes of this Code, the Commission
may issue, amend, and rescind such rules and regulations and orders necessary
or appropriate, x x x.

72.2. The Commission shall promulgate rules and regulations providing for
reporting, disclosure and the prevention of fraudulent, deceptive or
manipulative practices in connection with the purchase by an issuer, by tender
offer or otherwise, of and equity security of a class issued by it that satisfies the
requirements of Subsection 17.2. Such rules and regulations may require such
issuer to provide holders of equity securities of such dates with such information
relating to the reasons for such purchase, the source of funds, the number of
shares to be purchased, the price to be paid for such securities, the method of
purchase and such additional information as the Commission deems necessary
or appropriate in the public interest or for the protection of investors, or which
the Commission deems to be material to a determination by holders whether
such security should be sold.

The power conferred upon the SEC to promulgate rules and regulations is a
legislative recognition of the complexity and the constantly-fluctuating nature of
the market and the impossibility of foreseeing all the possible contingencies that
cannot be addressed in advance. As enunciated in Victorias Milling Co., Inc. v.
Social Security Commission[9]:
Rules and regulations when promulgated in pursuance of the procedure or
authority conferred upon the administrative agency by law, partake of the
nature of a statute, and compliance therewith may be enforced by a penal
sanction provided in the law. This is so because statutes are usually couched in
general terms, after expressing the policy, purposes, objectives, remedies and
sanctions intended by the legislature. The details and the manner of carrying out
the law are often times left to the administrative agency entrusted with its
enforcement. In this sense, it has been said that rules and regulations are the
product of a delegated power to create new or additional legal provisions that
have the effect of law.

Moreover, petitioner is barred from questioning the jurisdiction of the SEC. It

must be pointed out that petitioner had participated in all the proceedings
before the SEC and had prayed for affirmative relief. In fact, petitioner defended
the jurisdiction of the SEC in its Comment dated 15 September 2004, filed with
the SEC wherein it asserted:

This Honorable Commission is a highly specialized body created for the purpose
of administering, overseeing, and managing the corporate industry, share
investment and securities market in the Philippines. By the very nature of its
functions, it dedicated to the study and administration of the corporate and
securities laws and has necessarily developed an expertise on the subject. Based
on said functions, the Honorable Commission is necessarily tasked to issue
rulings with respect to matters involving corporate matters and share
acquisitions. Verily when this Honorable Commission rendered the Ruling that
the acquisition of Cemco Holdings of the majority shares of Union Cement
Holdings, Inc., a substantial stockholder of a listed company, Union Cement
Corporation, is not covered by the mandatory tender offer requirement of the
SRC Rule 19, it was well within its powers and expertise to do so. Such ruling
shall be respected, unless there has been an abuse or improvident exercise of
authority.[10]

Petitioner did not question the jurisdiction of the SEC when it rendered an
opinion favorable to it, such as the 27 July 2004 Resolution, where the SEC
opined that the Cemco transaction was not covered by the mandatory tender
offer rule. It was only when the case was before the Court of Appeals and after
the SEC rendered an unfavorable judgment against it that petitioner challenged
the SECs competence. As articulated in Ceroferr Realty Corporation v. Court of
Appeals[11]:
While the lack of jurisdiction of a court may be raised at any stage of an action,
nevertheless, the party raising such question may be estopped if he has actively
taken part in the very proceedings which he questions and he only objects to
the courts jurisdiction because the judgment or the order subsequently
rendered is adverse to him.

stockholders, at least 200 of them holding not less than 100 shares of such
company.[13] Stated differently, a tender offer is an offer by the acquiring
person to stockholders of a public company for them to tender their shares
therein on the terms specified in the offer.[14] Tender offer is in place to protect
minority shareholders against any scheme that dilutes the share value of their
investments. It gives the minority shareholders the chance to exit the company
under reasonable terms, giving them the opportunity to sell their shares at the
same price as those of the majority shareholders.[15]
Under Section 19 of Republic Act No. 8799, it is stated:
Tender Offers. 19.1. (a) Any person or group of persons acting in concert who
intends to acquire at least fifteen percent (15%) of any class of any equity
security of a listed corporation or of any class of any equity security of a
corporation with assets of at least Fifty million pesos (P50,000,000.00) and
having two hundred (200) or more stockholders with at least one hundred (100)
shares each or who intends to acquire at least thirty percent (30%) of such
equity over a period of twelve (12) months shall make a tender offer to
stockholders by filing with the Commission a declaration to that effect; and
furnish the issuer, a statement containing such of the information required in
Section 17 of this Code as the Commission may prescribe. Such person or group
of persons shall publish all requests or invitations for tender, or materials
making a tender offer or requesting or inviting letters of such a security. Copies
of any additional material soliciting or requesting such tender offers subsequent
to the initial solicitation or request shall contain such information as the
Commission may prescribe, and shall be filed with the Commission and sent to
the issuer not later than the time copies of such materials are first published or
sent or given to security holders.

This contention is not meritorious.

Under existing SEC Rules,[16] the 15% and 30% threshold acquisition of shares
under the foregoing provision was increased to thirty-five percent (35%). It is
further provided therein that mandatory tender offer is still applicable even if
the acquisition is less than 35% when the purchase would result in ownership of
over 51% of the total outstanding equity securities of the public company.[17]

Tender offer is a publicly announced intention by a person acting alone or in

concert with other persons to acquire equity securities of a public company.[12]
A public company is defined as a corporation which is listed on an exchange, or a
corporation with assets exceeding P50,000,000.00 and with 200 or more

The SEC and the Court of Appeals ruled that the indirect acquisition by
petitioner of 36% of UCC shares through the acquisition of the non-listed UCHC
shares is covered by the mandatory tender offer rule.
This interpretation given by the SEC and the Court of Appeals must be sustained.

On the second issue, petitioner asserts that the mandatory tender offer rule
applies only to direct acquisition of shares in the public company.

The rule in this jurisdiction is that the construction given to a statute by an

administrative agency charged with the interpretation and application of that
statute is entitled to great weight by the courts, unless such construction is
clearly shown to be in sharp contrast with the governing law or statute.[18] The
rationale for this rule relates not only to the emergence of the multifarious
needs of a modern or modernizing society and the establishment of diverse
administrative agencies for addressing and satisfying those needs; it also relates
to accumulation of experience and growth of specialized capabilities by the
administrative agency charged with implementing a particular statute.[19]

Petitioner counters that the legislators reference to any type of acquisition

during the deliberations on the Securities Regulation Code does not indicate
that congress meant to include the indirect acquisition of shares of a public
corporation to be covered by the tender offer rule. Petitioner also avers that it
did not directly acquire the shares in UCC and the incidental benefit of having
acquired the control of the said public company must not be taken against it.

The SEC and the Court of Appeals accurately pointed out that the coverage of
the mandatory tender offer rule covers not only direct acquisition but also
indirect acquisition or any type of acquisition. This is clear from the discussions
of the Bicameral Conference Committee on the Securities Act of 2000, on 17
July 2000.

These arguments are not convincing. The legislative intent of Section 19 of the
Code is to regulate activities relating to acquisition of control of the listed
company and for the purpose of protecting the minority stockholders of a listed
corporation. Whatever may be the method by which control of a public
company is obtained, either through the direct purchase of its stocks or through
an indirect means, mandatory tender offer applies. As appropriately held by the
Court of Appeals:

SEN. S. OSMEA. Eto ang mangyayari diyan, eh. Somebody controls 67% of the
Company. Of course, he will pay a premium for the first 67%. Control yan, eh.
Eh, kawawa yung mga maiiwan, ang 33% because the value of the stock market
could go down, could go down after that, because there will (p. 41) be no more
market. Wala nang gustong bumenta. Wala nang I mean maraming gustong
bumenta, walang gustong bumili kung hindi yung majority owner. And they will
not buy. They already have 67%. They already have control. And this protects
the minority. And we have had a case in Cebu wherein Ayala A who already
owned 40% of Ayala B made an offer for another 40% of Ayala B without
offering the 20%. Kawawa naman yung nakahawak ngayon ng 20%. Ang baba ng
share sa market. But we did not have a law protecting them at that time.

The petitioner posits that what it acquired were stocks of UCHC and not UCC. By
happenstance, as a result of the transaction, it became an indirect owner of
UCC. We are constrained, however, to construe ownership acquisition to mean
both direct and indirect. What is decisive is the determination of the power of
control. The legislative intent behind the tender offer rule makes clear that the
type of activity intended to be regulated is the acquisition of control of the listed
company through the purchase of shares. Control may [be] effected through a
direct and indirect acquisition of stock, and when this takes place, irrespective of
the means, a tender offer must occur. The bottomline of the law is to give the
shareholder of the listed company the opportunity to decide whether or not to
sell in connection with a transfer of control. x x x.[21]

CHAIRMAN ROCO. So what is it that you want to achieve?

SEN. S. OSMEA. That if a certain group achieves a certain amount of ownership
in a corporation, yeah, he is obligated to buy anybody who wants to sell.
CHAIRMAN ROCO. Pro-rata lang. (p. 42).

As to the third issue, petitioner stresses that the ruling on mandatory tender
offer rule by the SEC and the Court of Appeals should not have retroactive effect
or be made to apply to its purchase of the UCHC shares as it relied in good faith
on the letter dated 27 July 2004 of the SEC which opined that the proposed
acquisition of the UCHC shares was not covered by the mandatory offer rule.

xxxx
The argument is not persuasive.
REP. TEODORO. As long as it reaches 30, ayan na. Any type of acquisition just as
long as it will result in 30 (p.50) reaches 30, ayan na. Any type of acquisition just
as long as it will result in 30, general tender, pro-rata.[20] (Emphasis supplied.)

The action of the SEC on the PSE request for opinion on the Cemco transaction
cannot be construed as passing merits or giving approval to the questioned

transaction. As aptly pointed out by the respondent, the letter dated 27 July
2004 of the SEC was nothing but an approval of the draft letter prepared by
Director Callanga. There was no public hearing where interested parties could
have been heard. Hence, it was not issued upon a definite and concrete
controversy affecting the legal relations of parties thereby making it a judgment
conclusive on all the parties. Said letter was merely advisory. Jurisprudence has
it that an advisory opinion of an agency may be stricken down if it deviates from
the provision of the statute.[22] Since the letter dated 27 July 2004 runs counter
to the Securities Regulation Code, the same may be disregarded as what the SEC
has done in its decision dated 14 February 2005.

fine on the employer for failure to give notice in a case of dismissal for cause. To
the contrary, the new rule was applied right then and there. x x x.

Assuming arguendo that the letter dated 27 July 2004 constitutes a ruling, the
same cannot be utilized to determine the rights of the parties. What is to be
applied in the present case is the subsequent ruling of the SEC dated 14
February 2005 abandoning the opinion embodied in the letter dated 27 July
2004. In Serrano v. National Labor Relations Commission,[23] an argument was
raised similar to the case under consideration. Private respondent therein
argued that the new doctrine pronounced by the Court should only be applied
prospectively. Said postulation was ignored by the Court when it ruled:

In view of the foregoing, the letter of the Commission, signed by Director Justina
F. Callangan, dated July 27, 2004, addressed to the Philippine Stock Exchange is
hereby REVERSED and SET ASIDE. Respondent Cemco is hereby directed to make
a tender offer for UCC shares to complainant and other holders of UCC shares
similar to the class held by respondent UCHC, at the highest price it paid for the
beneficial ownership in respondent UCC, strictly in accordance with SRC Rule 19,
Section 9(E).[24]

While a judicial interpretation becomes a part of the law as of the date that law
was originally passed, this is subject to the qualification that when a doctrine of
this Court is overruled and a different view is adopted, and more so when there
is a reversal thereof, the new doctrine should be applied prospectively and
should not apply to parties who relied on the old doctrine and acted in good
faith. To hold otherwise would be to deprive the law of its quality of fairness and
justice then, if there is no recognition of what had transpired prior to such
adjudication.

A reading of the above ruling of the SEC reveals that the same is complete. It
orders the conduct of a mandatory tender offer pursuant to the procedure
provided for under Rule 19(E) of the Amended Implementing Rules and
Regulations of the Securities Regulation Code for the highest price paid for the
beneficial ownership of UCC shares. The price, on the basis of the SEC decision,
is determinable. Moreover, the implementing rules and regulations of the Code
are sufficient to inform and guide the parties on how to proceed with the
mandatory tender offer.

It is apparent that private respondent misconceived the import of the ruling. The
decision in Columbia Pictures does not mean that if a new rule is laid down in a
case, it should not be applied in that case but that said rule should apply
prospectively to cases arising afterwards. Private respondents view of the
principle of prospective application of new judicial doctrines would turn the
judicial function into a mere academic exercise with the result that the doctrine
laid down would be no more than a dictum and would deprive the holding in the
case of any force.

WHEREFORE, the Decision and Resolution of the Court of Appeals dated 24

October 2005 and 6 March 2006, respectively, affirming the Decision dated 14
February 2005 of the Securities and Exchange Commission En Banc, are hereby
AFFIRMED. Costs against petitioner.

Indeed, when the Court formulated the Wenphil doctrine, which we reversed in
this case, the Court did not defer application of the rule laid down imposing a

Lastly, petitioner alleges that the decision of the SEC dated 14 February 2005 is
incomplete and produces no effect.
This contention is baseless.
The decretal portion of the SEC decision states:

SO ORDERED.

MINITA V. CHICO-NAZARIO

Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

[1] Penned by Associate Justice Mario L. Guaria III with Associate Justices
Rebecca De Guia-Salvador and Arturo G. Tayag, concurring. Rollo, pp. 68-79.
[2] Id. at 119.
[3] Id. at 254-264.
[4] Id. at 71-72.
[5] Id. at 78.
[6] Id. at 576-578.
[7] Section 5, Subsection 5.1. (d) of the Securities Regulation Code provides:
[T]he Commission shall have, among others, the following powers and functions:
xxxx
(d) Regulate, investigate or supervise the activities of persons to ensure
compliance.
[8] Rollo, p. 75.
[9] 114 Phil. 555, 558 (1962).
[10] Rollo, pp. 182-183.
[11] 426 Phil. 522, 530 (2002).
[12] The Philippine Securities Regulation Code (Annotated), Rafael A. Morales
(2005 Ed.), p. 153.
[13] Id.
[14] Id.
[15] Securities Regulation Code (Republic Act No. 8799) Annotated with
Implementing Rules and Regulations, Lucila M. Decasa (First Edition, 2004) p. 64.
[16] Rule 19(2) of the Amended Implementing Rules and Regulations of the
Securities Regulation Code dated 30 December 2003 states:
2. Mandatory tender offers
A. Any person or group of persons acting in concert, who intends to acquire
thirty-five percent (35%) or more of equity shares in a public company shall
disclose such intention and contemporaneously make a tender offer for the
percent sought to all holders of such class, subject to paragraph (9)(E) of this
Rule.
In the event that the tender offer is oversubscribed, the aggregate amount of
securities to be acquired at the close of such tender offer shall be

proportionately distributed across both selling shareholder with whom the

acquirer may have been in private negotiations and minority shareholders.
B.
Any person or group of persons acting in concert, who intends to acquire
thirty-five percent (35%) or more of equity shares in a public company in one or
more transactions within a period of twelve (12) months, shall be required to
make a tender offer to all holders of such class for the number of shares so
acquired within the said period.
C.
If any acquisition of even less than thirty-five percent (35%) would result in
ownership of over fifty-one percent (51%) of the total outstanding equity
securities of a public company, the acquirer shall be required to make a tender
offer under this Rule for all the outstanding equity securities to all remaining
stockholders of the said company at a price supported by a fairness opinion
provided by an independent financial advisor or equivalent third party. The
acquirer in such a tender offer shall be required to accept any and all securities
thus tendered.
[17] Id.
[18] Nestle Philippines, Inc. v. Court of Appeals, G.R. No. 86738, 13 November
1991, 203 SCRA 504, 510.
[19] Id. at 510-511.
[20] Rollo, pp. 256-257.
[21] Id. at 76-77.
[22] San Juan de Dios Hospital Employees Association-AFW v. National Labor
Relations Commission, 346 Phil. 1003, 1010 (1997).
[23] 387 Phil. 345, 357 (2000).
[24] Rollo, p. 263.

FIRST DIVISION
[G.R. No. 155344. January 20, 2004]
ROLANDO N. CANET, petitioner, vs. MAYOR JULIETA A. DECENA, respondent.
DECISION
YNARES-SANTIAGO, J.:
On July 27, 1998, the Sangguniang Bayan of Bula, Camarines Sur, passed
Resolution No. 049, Series of 1998,[1] authorizing petitioner Rolando N. Canet
to establish, operate and maintain a cockpit in Sitio, Cabaya, San Roque, Bula,
Camarines Sur.
Subsequently, the Sangguniang Bayan passed Ordinance No. 001, Series of 1999,
entitled An Ordinance Regulating the Operation of Cockpits and Other Related
Game-Fowl Activities in the Municipality of Bula, Camarines Sur and Providing
Penalties for any Violation to (sic) the Provisions Thereof.[2] Upon transmittal to
respondent Mayor Julieta A. Decena of the said municipality, it was noted that
the Ordinance does not contain rules and regulations on cockfighting and other
related game fowl activities and a separability clause. The Ordinance was
returned to the Sangguniang Bayan. In Resolution No. 078, Series of 1999,
Sangguniang Bayan resolved to withdraw, set aside and shelf indefinitely
Ordinance No. 001, Series of 1999.[3]
Meanwhile, petitioner, relying on Resolution No. 049, Series of 1998, of the
Sangguniang Bayan, filed an application for a mayors permit to operate,
establish and maintain a cockpit in Sitio Cabuya, San Roque, Bula, Camarines
Sur. Respondent Mayor Julieta Decena denied the application on the ground,
among others, that under the Local Government Code of 1991, the authority to
give licenses for the establishment, operation and maintenance of cockpits as
well as the regulation of cockfighting and commercial breeding of gamecocks is
vested in the Sangguniang Bayan.[4]
Therefore, she cannot issue the said permit inasmuch as there was no ordinance
passed by the Sangguniang Bayan authorizing the same.
On July 26, 1999, petitioner filed a complaint[5] against respondent Mayor with
the Regional Trial Court of Pili, Camarines Sur, Branch XXXI, which was docketed
as Special Civil Action No. P-84-99, for Mandamus and Damages with Application
for Preliminary Mandatory Injunction. Respondent moved for the dismissal of
the complaint.

Hence, this petition for review.

A Resolution was issued by the trial court on January 27, 2000, the dispositive
portion of which reads:
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby denied.
Let a writ of preliminary mandatory injunction issue upon the posting of an
injunction bond by the plaintiff in the amount of FIFTY THOUSAND PESOS
(P50,000.00) executed to defendant to stand for all the damages which she may
sustain if it should be finally found that plaintiff is not entitled thereto, said
mandatory injunction ordering and commanding herein defendant, incumbent
Mayor of the Municipality of Bula, Camarines Sur to approve and issue forthwith
the Mayors Permit and to accept the fees therefor for plaintiff to establish,
maintain and operate a cockpit in Cabaya, San Roque, Bula, Camarines Sur.
Upon finality of this resolution, let the main case be set for further proceedings.

The core issue in this petition is whether or not respondent, in her capacity as
Municipal Mayor, can be compelled to issue the necessary business permit to
petitioner absent a municipal ordinance which would empower her to do so.
The pertinent provision of law in contention is Section 447 (a) (3) (v) of the Local
Government Code of 1991 (Republic Act No. 7160), which reads:
SEC. 447. Powers, Functions and Compensation. (a) The Sangguniang Bayan as
the legislative body of the municipality shall enact ordinances, approve
resolutions and appropriate funds for the general welfare of the municipality
and its inhabitants pursuant to Section 16 of this Code and in the proper
exercise of the corporate powers of the municipality as provided for under
Section 22, and shall:

SO ORDERED.[6]
xxx xxx xxx.
The writ of preliminary mandatory injunction was issued on February 1, 2000.[7]
Respondent filed a petition for certiorari and prohibition with the Court of
Appeals, docketed as CA-G.R. SP No. 57797.[8] On April 3, 2000, the Court of
Appeals issued a temporary restraining order,[9] directing petitioner and the
presiding judge to temporarily cease and desist from enforcing the writ of
preliminary mandatory injunction issued on February 1, 2000 in Special Civil
Action No. P-84-99.
On June 3, 2002, the Court of Appeals rendered the assailed Decision, the
dispositive portion of which reads:
WHEREFORE, the petition is granted and the questioned January 27, 2000
Resolution and February 1, 2000 writ of preliminary mandatory injunction issued
by respondent Judge are ANNULLED AND SET ASIDE while the writ of
preliminary injunction heretofore issued by this Court on July 10, 2000 is made
permanent. No costs.

(3) Subject to the provisions of Book II of this Code, grant franchises, enact
ordinances levying taxes, fees and charges upon such conditions and for such
purposes intended to promote the general welfare of the inhabitants of the
municipality, and pursuant to this legislative authority shall:
xxx xxx xxx.
(v) Any law to the contrary notwithstanding, authorize and license the
establishment, operation and maintenance of cockpits and regulate cockfighting
and commercial breeding of gamecocks: Provided, That existing rights should
not be prejudiced.

SO ORDERED.[10]

Petitioner admits that there is no ordinance in Bula, Camarines Sur which

authorizes the grant of a mayors permit to operate and maintain a cockfighting
arena. However, he invokes Resolution No. 049, S. 1998, wherein the
Sangguniang Bayan authorized him to operate a cockpit. Furthermore, he cites
Municipal Tax Ordinances Nos. 01, S. 1989, and 05, S. 1993, which generally
provide for the issuance of a mayors permit for the operation of businesses.

Petitioner filed a Motion for Reconsideration which was denied for lack of merit
in a Resolution dated August 2002.[11]

Municipal Tax Ordinances Nos. 01, S. 1989 and 05, S. 1993 contain general
provisions for the issuance of business permits but do not contain specific

provisions prescribing the reasonable fees to be paid in the operation of

cockpits and other game fowl activities.
It was Ordinance No. 001, S. 1999 which provided for the collection of
application filing fees, ocular inspection fees, mayors permit fees, filing fees for
the institution of complaints, entrance fees and special derby assessments for
the operation of cockpits.[12] This Ordinance, however, was withdrawn by the
Sangguniang Bayan.
Hence, there being in effect no ordinance allowing the operation of a cockpit,
Resolution No. 049, S. 1998, authorizing petitioner to establish, operate and
maintain a cockpit in Bula, Camarines Sur cannot be implemented. Suffice it to
state in this regard that to compel respondent to issue the mayors permit would
not only be a violation of the explicit provisions of Section 447 of the Local
Government Code of 1991, but would also be an undue encroachment on
respondents administrative prerogatives.
Along the same vein, to read into the ordinances relied upon by petitioner
objects which were neither specifically mentioned nor enumerated would be to
run afoul of the dictum that where a statute, by its terms, is expressly limited to
certain matters, it may not, by interpretation or construction, be extended to
other matters.[13] In other words, it is a basic precept of statutory construction
that the express mention of one person, thing, act, or consequence excludes all
others, as expressed in the oft-repeated maxim expression unius est exlusio
alterius.[14] Elsewise stated, expressium facit cessare tacitum what is expressed
puts an end to what is implied.[15] The rule proceeds from the premise that the
legislative body would not have made specific enumerations in a statute, if it
had the intention not to restrict its meaning and confine its terms to those
expressly mentioned.
Even on the assumption that there is in fact a legislative gap caused by such an
omission, neither could the Court presume otherwise and supply the details
thereof, because a legislative lacuna cannot be filled by judicial fiat.[16] Indeed,
courts may not, in the guise of interpretation, enlarge the scope of a statute and
include therein situations not provided nor intended by the lawmakers. An
omission at the time of the enactment, whether careless or calculated, cannot
be judicially supplied however after later wisdom may recommend the
inclusion.[17] Courts are not authorized to insert into the law what they think
should be in it or to supply what they think the legislature would have supplied if
its attention has been called to the omission.[18]

Courts should not, by construction, revise even the most arbitrary and unfair
action of the legislature, nor rewrite the law to conform with what they think
should be the law.[19] Nor may they interpret into the law a requirement which
the law does not prescribe.[20] Where a statute contains no limitations in its
operation or scope, courts should not engraft any.[21] And where a provision of
law expressly limits its application to certain transactions, it cannot be extended
to other transactions by interpretation.[22] To do any of such things would be to
do violence to the language of the law and to invade the legislative sphere.[23]
It should, furthermore, be borne in mind that cockfighting although authorized
by law is still a form of gambling. Gambling is essentially antagonistic to the aims
of enhancing national productivity and self-reliance.[24] As has been previously
said, a statute which authorizes a gambling activity or business should be strictly
construed, and every reasonable doubt resolved so as to limit rather than
expand the powers and rights claimed by franchise holders under its
authority.[25]
WHEREFORE, in view of all the foregoing, the petition is hereby DENIED for lack
of merit. The Decision of the Court of Appeals dated June 3, 2002 in CA-G.R. SP
No. 57797 is AFFIRMED in toto.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur,
[1] Record, p. 43.
[2] Id., pp. 45-50.
[3] Id., p. 53.
[4] Id., pp. 54-57.
[5] Id., pp. 58-62.
[6] Id., pp. 94-103, at 102-103.
[7] Id., p. 104.

[8] Entitled Mayor Juliet A. Decena v. Hon. Martin P. Badong, Jr. and Rolando N.
Canet.

[23] Republic Flour Mills v. Commissioner of Customs, G.R. No. L-28463, 39 SCRA
269 [1971]; Crisolo v. Macadaeg, 94 Phil. 862 [1954].

[9] Record, pp. 441-442.

[24] Lim v. Pacquing, G.R. No. 115044, 240 SCRA 649 [1995].

[10] Rollo, pp. 10-24, penned by Associate Justice Salvador J. Valdez, Jr.,
concurred in by Associate Justices Mercedes Gozo-Dadole and Amelita G.
Tolentino.

[25] Manila Jockey Club, Inc. v. CA, G.R. No. 103533, 300 SCRA 181, 198 [1998],
citing 38 Am Jur 2d Gambling 18; Aicardi v. Alabama, 19 Wall (US) 632, 22 L ed
215; West Indies, Inc. v. First National Bank, 67 Nev 13, 214 P2d 144.

[11] Id., pp. 25-29.

[12] Rollo, p. 52.
[13] Hongkong & Shanghai Bank v. Peters, 16 Phil. 824 [1910].
[14] City Government of San Pablo, Laguna v. Reyes, G.R. No. 127708, 305 SCRA
353 [1999]; citing Commissioner of Customs v. CTA, G.R. Nos. 48886-88, 224
SCRA 665 [1993].
[15] Santiago v. Guingona, G.R. No. 134577, 298 SCRA 756 [1998].
[16] Atlas Consolidated Mining and Development Corporation v. Commissioner
of Internal Revenue, G.R. No. 119786, 295 SCRA 721 [1998], Davao Gulf Lumber
Corporation v. Commissioner of Internal Revenue, G.R. No. 117359, 293 SCRA
76 [1998].
[17] Morales v. Subido, G.R. No. L-29658, 26 SCRA 150 [1968].
[18] People v. Garcia, 85 Phil. 657 [1950].
[19] Vera v. Avelino, 77 Phil. 192 [1946]; Baking v. Director of Prisons, G.R. No. L30364, 28 SCRA 850 [1969]; Ichong v. Hernandez, 101 Phil. 1156 [1957].
[20] Palanca v. City of Manila, 41 Phil. 125 [1920].
[21] Hongkong & Shanghai Bank v. Peters, 16 Phil. 284 [1910].
[22] Palanca v. City of Manila, supra; Hongkong & Shanghai Bank v. Peters,
supra.